The Goldman Rule: Don't Let This Puppet Master Pull Your Strings

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Goldman Sachs Group Inc. (NYSE: GS) Chief Executive Officer Lloyd Blankfein was really on a roll speaking at an investment conference in New York last week.

Among other things, he said there's no way we can conclude that a slowdown in banking and trading businesses is "secular, rather than cyclical."

That alone was enough to make me laugh. But then he went on to address concerns about pending regulations that are coming as a result of the Dodd-Frank Financial Reform Act.

"In our conversations with clients, they have expressed several concerns on the impact to their businesses," Blankfein said, making it clear that his firm will make client interests a theme of its arguments against the regulations. "What Goldman Sachs does for our clients is even more relevant and important."

Now that should make you laugh – if, of course, you're not too afraid.

The truth is that Goldman Sachs and the rest of the big banks on Wall Street – in the inimitable words of author Michael Lewis from his seminal book Liar's Poker – invariably "blow up" customers to make money for themselves.

Not only do they run roughshod over their customers (trading partners) and clients (banking relationships), the big banks manipulate markets, industries, economies and countries to fatten their already gigantic bonus pools and personal fortunes.

Now, I'm not singling out Goldman Sachs because it's the biggest and baddest bully on the block, which it is. I'm not blasting Goldman because I once idolized the firm – its culture, its talent, its sheer money-making prowess – and have seen its vision blinded by greed since going public in 1999. I'm not saying Goldman is the only self-serving, greedy, and pretentious firm on Wall Street. And, I'm certainly not calling out Lloyd Blankfein, whose extraordinary accomplishments as a trader are legendary, but whose leadership of Goldman has been marred by what might generously be described as "PR gaffes."

What I am doing is using Goldman as proof positive that Wall Street banks are bad news.

In fact, rather than seeing them rebound we would all be better off seeing them unwound.

From Wall Street to K Street – And Back

Let me start with the nexus of power and money in this country. That nexus resides exactly where Wall Street and Washington intersect. Each serves the other and the middle-class be damned.

You see, the "revolving door" metaphor that's so often used to describe the relationship between Wall Street and Washington isn't exactly accurate.

The reality is that there is no revolving door. There are no doors at all. It is more like one giant corridor where all the water cooler talk is about paying for campaigns, paying lobbyists, and paying bonuses.

There's a reason why Goldman Sachs is derisively referred to as "Government Sachs." The flow of executives and operatives between Goldman and Washington, and even other world governments and central banks for that matter, is legendary.

I can't point out all the connections – there are simply too many. But I will point out a few that you may not be aware of.

How about Robert Rubin – the former Goldman co-CEO who became Treasury Secretary in the Clinton administration? From that post, Rubin squashed all regulations pertaining to derivatives, and ended Depression-era laws like the Glass-Steagall Act (which separated commercial banks from investment banks) so giant Citicorp could be formed by the merger of Travelers and Citibank. Rubin then went to Citigroup Inc. (NYSE: C), where he made some $119 million while leveraging the bank up with derivatives before it had to be bailed out.

Bailed out by whom? Bailed out by then Treasury Secretary Henry M. "Hank" Paulson, himself a former Goldman CEO.

And bailed out how? With the help of the Federal Reserve Bank of New York, whose chairman was Steve Friedman, a former Goldman partner, still on Goldman's board.

That's the same Steve Friedman who bought $3 million worth of Goldman shares based on allegedly inside information he garnered at the Fed and from Goldman's board meetings, profited handsomely, and had to resign from the Fed board — but not give any of his profits back.

And finally, Goldman itself had to be bailed out when it ran to the Fed on a Sunday in September 2008 to beg to be turned from an investment bank to a bank holding company so it could get Fed cash.

The Usual Suspects

There are innumerable connections and fascinating stories. So, I won't bore you with the one about Goldman arranging a currency swap at an apparently "fictitious" exchange rate for the government of Greece. Nor how that swap facilitated Greece hiding its debts to get into the Eurozone, so it could then borrow euros ad nauseam until it had to be bailed out – again and again.

I'm not going there. Because if I did I'd have to get into how precariously positioned the new "technocrats" — who are supposed to save Italy with the help of the ECB — actually are.

And who are they?

Well, there's Mario Draghi, the new president of the ECB. Super Mario, it turns out, was Vice Chairman and Managing Director of Goldman Sachs International, and a member of the firm-wide management committee from 2002 to 2005. He claims to have not been responsible for the Greek currency swap, saying it was arranged before he went to Goldman. But he's never denied it.

That's comforting.

If he runs the ECB the same way Goldman runs its business, there might be some areas where transparency may not be the order of the day. And isn't that exactly what a central bank is supposed to be about?

If I had more time here I'd mention that Mario Monti, prime minister-designate of Italy, not only was a European Commissioner, but an international adviser to Goldman Sachs.

I'm just comforted to know that these old buddies are all still manipulating global finances for the betterment of our interests and the Goldman bonus pool this fiscal year or next.

Customer Service

I'm also not going to get into how Goldman set American International Group Inc. (NYSE: AIG) up to fail, or how the New York Fed made the firm whole on the credit default swaps it had written on AIG. Nor will I get into how Goldman board member Rajat Gupta allegedly passed along boardroom secrets to his friend and Goldman customer Raj Rajaratnam (now serving time for insider trading), or how the Justice Department is looking into how Goldman teed-up millions of investors and hit a hole in one when the mortgage market failed and they were short.

I'm only going to point to one small incident that proves Goldman really does have the interest of its clients at heart.

Back in 2007 Goldman constructed a little billion-dollar deal for a customer named John Paulson. Only the firm didn't tell its other customers, the ones to which it sold the Paulson deal known as Abacus 2007-AC1, that the deal was designed to fail.

Paulson made out like a bandit because he bet against the deal. Now that's good customer service.

Goldman didn't admit any wrongdoing and paid a paltry $550 million fine, which in terms of its 2009 earnings amounted to 15 days worth of register ringing.

So, let me get this right: Goldman, and the rest of its big bank brethren, are all about their customers. And they want their customers to go to bat for them with the regulators.

I suppose it was those nasty regulators that caused the whole credit crisis and the Great Recession in the first place.

And I guess that means that if Goldman, with the help of its customers, can get all those pesky regulators out of the way, we'd all finally be free to do business and live happily ever after – especially Goldman and the rest of big banks, of course.

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. John Ciulla | November 21, 2011

    Bully Banks as well as many other major iinstitutions the like of MF Global cannot be trusted to have their clients best interests in mind at all.
    Seperation from any of them would be to anyone's best interest.
    Buy Silver and Gold at Direct Dealer Cost with no markups and no third party involvement.

  2. Bob van der Valk | November 21, 2011

    Why do bankers like Lloyd Blankfein work so hard? To make the big bonuses or perhaps control the world of banking? No, here is the exact quote from the article in the Novermber 2009 Sunday London Times:

    "An impish grin spreads across Blankfein’s face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker "doing God’s work".

    All he needs now to revert the GS office to a church, temple or synagoue to make the deal complete. And it will all be tax exempt. After all aren't religious instutions supposed to be non-profit when they are doing God's work?

    • Melanie | November 21, 2011

      which God? please be careful how you reference the church, temple or synagogue.. please also check out what Ted Gunderson had to say about the Illuminati on youtube.. very interesting!

  3. Vicente | November 21, 2011

    I strongly believe that some financial institutions are AGAINST customers, I also believe that they create some of the problems that we all have and……….The first paragraph in my Will states as follows:

    Never ever believe or follow financial advisors, many of them will sell products that are designed to make rich the institutions where they work and make money for themselves…………..not for their customers, that is, people like you and me…….

    The above is my advice to MY family….why do you think I came to that conclusion???

  4. Donald | November 21, 2011

    Great story.

  5. Edouard D'Orange | November 21, 2011

    Outrageous, simply outrageous. Is there any national politician speaking out against the out and out corruption and Washington-Goldman Sachs incest?

  6. melanie | November 21, 2011

    Thank you Shah for having the guts to share this with us – I really love your work!

    I note your comment "Now that should make you laugh – if, of course, you're not too afraid". Too true! Unfortunately there are a lot of good people who are afraid, and with good reason.. while we are on this topic please check out what Ted Gunderson had to say about the Illuminati and how they are forcing their will on the world – I think it fits with this discussion..

    Thank you for not being afraid to speak out! Very kind regards, Mel

  7. PHIL STEINSCHNEIDER | November 21, 2011

    Mr. Gilani,

    I always adore your articles on Money Morning. And your Wall Street Insights & Indictments newsletter is becoming required reading. Thank you for providing well-written and intellectually compelling material. I worry that you might be burning bridges, however. But the fact you’re willing make that potential sacrifice shows your integrity and the fact that you’re fed up with the status quo. Thank you for being a brave insider willing to expose everything wrong with what’s become rigged capitalism.

    Conversely, I continue to perceive that you believe that some form of regulation will somehow fix the unfixable. Yet, you clearly indicate that Washington and Wall Street are inextricably intertwined. Therefore, it stands to reason that any regulation out of our Nation’s Capital will be crafted to benefit those on Wall Street—establishing an artificial sense of security—when in fact, the taxpayer and average investor are essentially navigating between Scylla and Charybdis. (Charybdis is certainly Washington, sucking money down into its inescapable whirlpool, while Wall Street must be Scylla, plucking up hapless sailors from the deck of their ships.)

    If we lived in a truly free market, and our currency was based on something that prevented its central bank from willing it into existence, not only would these banks (investment and commercial) never have gotten so big, and government spending gotten so out of control, but the banking institutions taking irresponsible gambles would certainly have failed long ago due to the government being powerless to do anything about it.

    It’s ironic that the things we did after the Panic of 1907 laid the groundwork for the catastrophic disaster that lies directly in front of us. In our attempts to make things better by smoothing over the markets, we simply created an artificially-calm sea that never really eliminated the turbulence that churns just beneath, and the monsters that maraud on the rocks high above, the surface.

    Maybe we need to learn to live with the natural volatilities of true capitalism—uncertainty, risk, and failure—since the paradigm of the past 100 years certainly hasn't been as stable as we were all led to believe.

    • Richard | November 21, 2011

      Phil, these are excellent comments. Some of the most cogent I have recently read. Hopefully your thoughts can find a way into the big world for the average voter to consider.

  8. fallingman | November 21, 2011

    Speak brother! The truth…and so well written…with the kind of acerbic snap that should be reserved for discussions of Goldman alone…okay, and maybe JP Morgan.

    Good thing you didn't tell us about all of Goldman's depredations. HA!

  9. Amy Neagoe | November 21, 2011

    Please let me agree with your comment, dear mr. der Valk.
    And also, please let me briefly explain to you, there is the whole system, with the entire society, to have been build up and constructed, into a corrupted and also communist and marxist manner, like that.
    All in all, in my opinion, that 'revolution' within the religions, is only a plan. It is only a game, we're forced to be part from, contrary to our will.
    As it cannot be only the religion, to build up a person's guiding values, and mostly for a lifetime. It is only the policy, to blame for, while it is to be understood, by that, the entire administration with the rules of conduct, within the world. And afterthat, it comes the mass-media and the family. And these are the most powerful forces, by which you can build up the lifetime values, inside of a brain.
    All in all, wherever we look around, we only see fat cats, like this on the Wall Street, you tell me about.
    And the corruption, is the extinction of the idiocy.
    While you can find them both, within the fury of the protesters in the Wall Street(the majority from them, which is nothing else but a majority of poorly educated kids): and within these cats and dogs in the Wall Street, who can't do anything, but perform the way their contract tells them, to.
    In the end, please let me ask: what do you think it would had happened, if both the protesters, and the employees, in the Wall Street, had more formal and informal experience, with common sense? A more pure brain,a more important consideration, towards the life, than this one they have?Looking forward….?!
    What do you think about?

  10. Chazhoor | November 21, 2011

    Very well wrriten and frightening for the so-called silent majority. While we all do agree that these big banks, not only Goldman, but others of the same ilk too, like Morgan Stanly, Citibank, BOA, JP Morgan,
    are doing the same thing, more or less the same way. These banks are the ONLY reason for the huge
    hike in crude prices, on the pretext that oil is too scarce, when in reality there is a huge glut of oil in the
    US and all over the world, by their 'futures trading' in oil, in other words, simple 'gambling' in oil prices,
    making all other industries suffer, the American economy becoming as bad as it has, and putting millions
    of people out of work all over the world. But these so-called investment banks just don't care about the
    people of this country or any other country, the sufferings of millions around the world, but they want their profits and pelf. As President Kennedy once said, "these handful of executives will do anything for their personal profit and pelf", damn the American people, the American economy, the world economy and the
    whole world.
    And when their speculative bubble bursts, as it did when the housing bubble burst, then they run to the government to be bailed out with hundreds of billions of tax-payers money, the very same people whose blood they suck out to make their billions in profits and millions in their personal pay and perks and they DO GET THESE BILLIONS, because otherwise OUR economy will collapse and all the people will suffer!

  11. david tarbuck | November 21, 2011

    Treaury bills, bonds, swaps, Derivatives , printing press money, &c exchages; all the funny money totals Some $700TRILLION and this compares to a WORLD GDP of $70 TRILLION.

    Karl Marx called this valueless paper "ficticious capital", though in his day when imploded from time to time in periodic crises, being only about 10% of the GDP it only manefested as a problem when markets were contracting, commodities remained unsold/unpaid for but the bill collectors still came for a 'chat'. However with the 10% figure, a few bankruptcies and (more often) swindles planned in advance ended the matter that is untill another boom & bust set up another batch of valueless documentation with unjust claims on the REAL VALUE created by enterpreneur led LABOUR.

    Now though after continuously trying to eliminate crises that are inherent (and hard but NOT all bad) to a capitalist market system over a time span of decades Keynesians and similar have only suceeded in postponing a problem that when not timely faced GROWS (like unservived debts), EXPONENTALLY!

    Ergo in the 21st century the "ficticious capital" is not 10% but 1000% of the GDP of the WHOLE WORLD GDP.

    This unprecedented; the stage is now set for bankruptcies and swidles on a magnitude unpreidented!!

  12. Mike Angstreich | November 21, 2011

    Wise and witty words. My gratitude.

  13. BILL FRITZ | November 21, 2011

    Finally, a commentator who really gets it. Checks and balances? They no longer exist. Reasoned regulation? Impossible. We are either too fearful of losing business to emerging markets or too fearful to change. So we keep doing whatever greases the wheel that grinds us down more. Hope? That will come. But only when we all return to the most basic starting point of building a truly free economy; and do and spend whatever it takes to build talented resolve as widely as possible and put it to work as diversely as possible in every livelihood, and in every corner of our country, and to elect only those with the guts to do only that, no matter how the are labeled. We all lose whenever we idle any person's ability to increase their productivity, whether in educating themselves to transition to something new or better, or in trying to do their job better than they did it yesterday, or in getting the medical care that enables them to work at their optimum, or in being able to move to where their ability has the best fit. It is that basic. For the last dozen years or so, the goal seems to have been how much idle, unproductive wealth can be piled up by individuals and taken out of the economy, rather than what can we each build using everything we have. Now we are paying a heavy price to reverse that popular mind set of "success." "Debt" is the cost of idled production and almost never repaid in full. "Investment" is building real productivity and is almost always repaid several times over if done with talented resolve.

  14. Anony Mole | November 21, 2011

    Yes, corporate banks will continue to jackboot march over the likes of you and me with the apparent blessings of government.

    UNLESS…

    We do something about it. What can we do? VOTE 1,2,3

    1. Next election, vote out every incumbent in Congress. Every one. The good with the bad. The bad because they are self serving, egotistical elitists, the good because they are ineffectual and most likely have capitulated to the bad.

    2. In selecting your replacement, consider the following: a) the 28th Amendment – all laws must apply to Congress as well as the populace equally. b) the 29th Amendment – Congress will make no laws equating corporation to natural persons. Corporations are not people. c) The 30th Amendment – Congress must abolish the concept of party throughout Congress itself. No longer will Congress persons be known as Democrats or Republicans, only as Representatives of the People.

    Your candidate must support any or all of these Constitutional amendments.

    3. Because points 1 and 2 will mostly likely fail, you must contact a State representative to incite them to initiate a Constitutional Congress to propose these amendments.

    Congress must work for the people.
    The People must not work for Congress.
    Congress must fear the People.
    The People must not fear Congress.

  15. Conor | November 21, 2011

    Hi Shah,
    I am very surprised to see that once again you and the various people who responded to your article are castigating good old Goldman Sachs. You should always keep in mind, as per LLoyd Blankfein statement that "they are doing God's work" and I always though that everyone knew that in Goldman's , money is their God.

    Conor

  16. Anony Mole | November 21, 2011

    Yes corporate banks will continue to jackboot march over the likes of you and me with the apparent blessings of government and there appears to be nothing we can do about it. Or is there? We do have the power to change the way GS,MS,BAC,C… work against us through government.

    Vote 1,2,3

    1. Next election, vote out every incumbent in Congress. Every one. The good with the bad. The bad because they are self serving, egotistical elitists, the good because they are ineffectual and most likely have capitulated to the bad.

    2. In selecting your replacement, consider the following: a) the 28th Amendment – all laws must apply to Congress as well as to the populace equally. b) the 29th Amendment – Congress will make no laws equating corporation to natural persons. Corporations are not people. c) The 30th Amendment – Congress must abolish the concept of party throughout Congress itself. No longer will Congress persons be known as Democrats or Republicans, only as Representatives of the People.

    Your candidate must support any or all of these Constitutional amendments.

    3. Because points 1 and 2 will mostly likely fail, you must contact a State representative to incite them to initiate a Constitutional Congress to propose these amendments.

    Congress must work for the people.
    The People must not work for Congress.

  17. Werner | November 21, 2011

    Good to be a Money Morning subscriber. Where else could you get such useful – though also scaring – reminders of what is going on.
    Thank you for your timely warnings Shah.

  18. Gary Schlosser | November 21, 2011

    Oh yeah!
    Another of Shah's pithy analysis of who is doing what to us. I only wish I had the money to follow some of his recommendations. He is so right. The corridor from Washington to New York is filled with former congressmen who can't agree on how to manage this country, (I forgot Obama is suppose to manage the country according to our perfect democracy) while the rest of us suck it up. Be careful Shah the banks don't like it when a "trader" becomes a "traitor". At least you have a wonderful sense of humor in the way you write. I couldn't help but laugh my way through you article. . .or was I crying?? Please keep up your good work. Occupy could use a leader like yourself. Someone needs to articulate what is going on. Thanks so much from an un-initiated.

  19. Chuck | November 21, 2011

    Sounds like many more at Goldman should be joining Rajaratnam for an extended vacation.

    Disgraceful that the likes of Friedman and Paulson aren't charged and then get to keep the gains on top of it!!

  20. Scott Lowden | November 21, 2011

    Mr. Gilani,
    Your letter and Phil Steinschneider's response are two of the most incisive and best posts I have read in a long time. Thanks to both of you!

  21. Luutzen | November 21, 2011

    I begin to understand the circumstances under which national-socialism came alive in the Great depression and why Hitler hated Jews.

    • Jerry Hefner | November 21, 2011

      Under the cover of a free flow of opinion Luutzen you have resorted to the old canard of guilt by association. I am also appalled by the all too common and freewheeling corridor of power and its convergence in government and business, Greed and stupidity, combined with gullibility seem to breed this kind of behaviour,not broad character assassination.

  22. Paul Dueweke | November 21, 2011

    Shah Gilani presented many facts about banking, while Phil Steinschneider's comment speaks even more truth behind the facts. As for me, I choose not to enrich the banks any more than I have to. I have cut my credit card purchases to a small fraction of what they used to be, and I use a credit union for all my banking functions. We all have choices to make about dealing with the banking system.

  23. Robert PMO | November 21, 2011

    The root of the problem is that investment banks were set free to do their evil deeds when Rubin & Clinton got rid of the Glass-Steagall Act. They should both be in jail.

    President Bush tried to bring something like a Glass-Steagall Act back into law but could get any support from either side of Congress. Those members of Congress should also be in jail.

    In countries that have something like a Glass-Steagall Act you'll see stable banks, stable housing markets, low unemployment rates, and no major financial problems (eg. Canada, Australia, Singapore, South Korea, Panama, Germany, Finland, Sweden, etc.).

    • Mike | March 26, 2012

      I am learning forex..I like swing dnrtiag very much because I don't have toon cumputer for 24 hrs a day to make trade..I am using Ninja Platform and also I like to lease your software/training on monthly basis..Is there any program for that???Please let me know via e mail only..ThanksGulab

  24. Alex | November 21, 2011

    Great article – straight at bull's eye! Shah, you can make good money writing a book about all these WS banks and their "little dirty secrets". I'm starting to believe there is really masonic/illuminati/scalp and bones/cfr/brandenburg/etc. conspiracy to manupulate the world. I will appreciate what you and other members think about this alarming possibility.

    • Melanie | November 22, 2011

      Hi Alex,

      I wouldnt have ever called myself a conspiracy theorist – until now! I recently watched a youtube vid of Ted Gunderson speaking about this Illuminati/political/banking connection and I was shocked – but it makes sense to me now.. the ludicrousy of the system.. it was all set in motion a long time ago.. its really worth checking out.

      Anyway all the best and thanks for your post.

  25. Robert | November 21, 2011

    As far as the big banks are concerned, Rodney Dangerfield gets more respect than you: 0.10 APR on your savings, but 30% for them on your credit card plus ever expanding fees (read card swipe) and late charges. The way to stop a vampire: don't give him your blood! Transfer everything tomorrow to a credit union.
    Unfortunately, our "regulators" have reduced the required reserves of the big banks to the point that if one in twenty of you do just that, they will implode, triggering nauseating new bleating about "too big to fail". Well too bad- if, after your already bailing them out to the tune of trillions, the government tells you there is not enough money in the FDIC, use your last dollar for a pitchfork

  26. Plato | November 22, 2011

    After reading this very interesting article and sharp comments I wonder: " Can an "honest" man become rich?"

  27. William W. Andrews | November 28, 2011

    MF Global money didn't disappear; it went straight to Goldman Sachs. This was a criminal conspiracy among Gary Gensler, Jon Corzine, and a long list of "former" Goldman Sachs employees in and out of government.They took 20% of customers’ money. The US government has taken 70%!
    America is SUCH a great country – as good as Russia and North Korea.

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