'In 2014, Goldman was also the top investment bank underwriting IPOs, netting nearly $5 billion in fees from public offerings'.
Why Goldman Sachs May Be Your Next Startup Investor
Goldman Sachs is one of the biggest beneficiaries from the latest tech IPO boom--and it's not for what you'd think.
By Jeremy Quittner
Senior writer, Inc.@JeremyQuittner
There’s perhaps no bank more controversial than the investment firm Goldman Sachs, for its role in the financial crisis of 2008. So there’s probably some small irony in Goldman’s latest area of focus: financial startups.
Over the past few years, Goldman has invested hundreds of millions of dollars in far-flung assortment of payments and alternative finance companies including Square, Bluefin Payments, Bill Trust, Revolution Money, as well as newly public OnDeck Capital, an Inc. 5000 company. It’s also ventured into digital money, including the bitcoin startup Circle Internet Financial, venture capital research company CB Insights reports.
In a March investment note, Goldman said that old-guard financial firms, like itself, are in danger of losing $4.7 trillion to new financial technology startups, and suggested partnerships and acquisitions were an important way for such companies to gain a foothold.
That's something of a departure from its earlier, more broad-based tech investment strategy, which includes rounds in newly-minted tech stars including Uber, whose value just topped $50 billion, as well as Dropbox and Spotify.
Between 2009 and 2013, Goldman participated in 63 disclosed investment deals, worth nearly $4 billion, according to CB Insight's most recent research. The Wall Street bank also prefers late-stage investments in unicorns such as Dropbox and Uber. (Its 2012 investment in Facebook, where Goldman was part of a $1.5 billion round, valued the company at $50 billion.)
In 2014, Goldman was also the top investment bank underwriting IPOs, netting nearly $5 billion in fees from public offerings.
In 2008, at the height of the financial crisis, Goldman converted to a bank holding company so it could benefit from the Troubled Asset Relief Program (TARP) that helped banks get troubled mortgages off their books. In 2009, it launched a charitable donation program, called 10,000 Small Businesses, worth $500 million. The program funded community development financial institutions that help small businesses with financing, as well as provided financing through other local entities. The program was seen in some circles as a publicity stunt aimed at quelling popular anger over its rich executive compensation packages, reportedly worth $16 billion in 2009, following a $10 billion infusion from the federal government.
Here we are in 2016 with yet another Wall Street bank settlement that is pennies on the dollar of fraudulent profits for these banks. They also were allowed to keep all that money to build the coming Wall Street fraud----the US Treasury and state municipal bond fraud bringing the same economic crash as in 2008 only far worse. Only a 1% WALL STREET CLINTON/BUSH/OBAMA pol would allow these kinds of economic structures in a US city or state.
We are looking at the face of this coming sovereign debt fraud-----with the DOJ PRETENDING these settlements are some kind of justice.
Goldman Sachs Finally Admits it Defrauded Investors During the Financial Crisis
- Lucinda Shen
Goldman Sachs effectively admitted that it had knowingly misled investors to buy shoddy products.
Investment banking giant Goldman Sachs GS 1.46% has agreed to a list of “facts” in addition to paying $5.1 billion to settle a lawsuit related to its handling of mortgage-backed securities leading up to the 2007 financial crisis, the U.S. Department of Justice announced Monday.
It’s a definite improvement on the DoJ settlements of a few years ago when Wall Street firms were able to get away with saying they “neither admit or deny the charges.” But it’s unlikely to quell critics that say the government hasn’t done enough to punish bankers in the wake of the financial crisis. Just like in past settlements, no individual bankers have been charged with wrong doing.
(For more on Fortune’s award-winning story on Goldman and mortgage bonds: House of Junk)
From 2005 to 2007, Goldman issued and underwrote many mortgages and securities that had been backed by residential loans borrowed by consumers with shoddy credit ratings. That helped tip the economy into recession after the housing bubble burst in 2007, leading to a tsunami of foreclosures and delinquencies. That caused billions of dollars in losses for investors. The settlement mentioned mortgage loans that had been originated by Countrywide, Fremont, and others. Countrywide was bought by Bank of America is early 2008. Fremont is no longer in business.
Goldman agreed to pay $2.39 billion in civil penalties, and another $1.8 billion in relief in the form of loan forgiveness and financing for affordable housing. An additional $875 million will be paid in cash to resolve claims from other federal and state entities.
“This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail,” said Acting Associate Attorney General Stuart F. Delery in a statement.
As part of the settlement, New York-based Goldman agreed to a list of facts put together by the DoJ that stated Goldman had misled investors about the mortgage-backed securities while knowing that the repackaged loans were indeed riskier than what they had told investors.
Goldman also agreed to say the bank had failed do to its due diligence. In one case, the bank’s due diligence noticed an “unusually high” percentage of loans with credit and compliance of defects. When asked by Goldman’s Mortgage Capital Committee: “How do we know we caught everything?” A transaction manager responded “because of the limited sampling … we don’t catch anything.” No further due diligence was undertaken.
In January, Goldman disclosed that it had agreed to pay the government $5 billion in relation to its role in the financial crisis, though the exact terms of the term had not been hashed out. The bank has already set aside funds for many of the charges. Goldman set aside $4.01 billion in legal expenses for all of 2015.
But don’t think $5 billion is the total penalties Goldman has accumulated as a result of the financial crisis. Back in 2010, the bank paid $550 million to the Securities and Exchange Commission to settle charges that it had misled investors into buying financial instruments tied to subprime mortgage bonds. In that settlement, Goldman paid the fine, but neither admitted nor denied wrong doing. In 2014, the bank also agreed to pay $3 billion to the Federal Housing Finance Agency to settle claims with Fannie Mae and Freddie Mac. There are also many other private lawsuits that have been filed against the investment bank related to mortgage bonds.
Goldman Sachs is the fifth bank to reach a multibillion-dollar settlement with the Department of Justice in relation to subprime mortgages during the Great Recession. Other bank settlements include $13 billion with J.P. Morgan Chase; $16.6 billion with the Bank of America; $7 billion from Citigroup; and $3.2 billion from Morgan Stanley.
Goldman is scheduled to report first quarter earnings on April 19.
If you or I were to go to a bank for a loan having manipulated our debt with schemes to hide them----THAT WOULD BE CALLED FRAUD and we would be in court charged with trying to defraud that bank.
WE THE PEOPLE must remember the circumstances of last decade's Wall Street frauds that went with absolutely no justice as we head into the next super-sized bond market fraud. Below we see an article that speaks to the events leading towards the saturation of European nations ---especially those strong social democracies-----with sovereign debt as the financial players as national leaders deliberately loaded these nations with debt---from Greece, Spain, Ireland, Portugal, Italy---just as in the US where our local and state pols loaded these economies with subprime mortgage fraud and today they are doing the same with municipal and US Treasury bond debt. Pols in Europe were planted-----these global banks were allowed to create illegal deals simply saying --ALL THIS IS LEGAL ACCORDING TO SOME POLICY----setting the stage for Europe's economic crisis and Goldman Sachs with Deutsche Bank were the major players.
GOLDMAN SACHS WAS THE DRIVER OF THESE DELIBERATE ATTACKS AT NATIONAL SOVEREIGNTY IN WHAT WAS THE ROBBER BARON FLEECING OF US, UK, AND EUROPEAN NATIONAL WEALTH.
National media of course blamed all this fraud and debt on those lazy social democratic citizens---while all of this was 1% Wall Street planned and delivered. Notice 2001 was when Greece was staged for this blowup----2001 was right after the Glass Steagall banking deregulation that expanded Wall Street globally---and this was one of the first acts against national sovereignty these global banks did.
Greece had planted Wall Street leaders who allowed the nation to be drawn into settlements tying those nations' to the sovereign debt created illegally. When a nations' pols conspire to defraud citizens and government coffers these actions would have been found illegal and dismissed -----and at best honest politicians would have allowed those debts to default. This is what is staging in US cities right now---as candidates for Mayor of Baltimore need to be establishment candidates who will do the same to citizens in Baltimore as was done to citizens in Greece----where the mayor and city hall simply hands the city as bankrupt to those defrauding WE THE PEOPLE.
Greek debt crisis: Goldman Sachs could be sued for helping hide debts when it joined euro
Exclusive: A leading adviser to debt-riven countries has offered to help Athens recover some of the vast profits made by the investment bank
Goldman Sachs faces the prospect of potential legal action from Greece over the complex financial deals in 2001 that many blame for its subsequent debt crisis.
A leading adviser to debt-riven countries has offered to help Athens recover some of the vast profits made by the investment bank.
The Independent has learnt that a former Goldman banker, who has advised indebted governments on recovering losses made from complex transactions with banks, has written to the Greek government to advise that it has a chance of clawing back some of the hundreds of millions of dollars it paid Goldman to secure its position in the single currency.
The development came as Greece edged towards a last-minute deal with its creditors which will keep it from crashing out of the single currency.
Read moreThe deal is based on fresh economic reform proposals submitted by Athens which bear a striking similarity to the creditors’ offer rejected by the Greek people in a referendum last Sunday – sparking claims that Prime Minister Alexis Tsipras has effectively executed a huge U-turn in order to avoid a catastrophic “Grexit”.
Greece managed to keep within the strict Maastricht rules for eurozone membership largely because of complex financial deals created by the investment bank which critics say disguised the extent of the country’s outstanding debts.
Goldman Sachs Manhattan headquarters
Goldman Sachs is said to have made as much as $500m from the transactions known as “swaps”. It denies that figure but declines to say what the correct one is.
The banker who stitched it together, Oxford-educated Antigone Loudiadis, was reportedly paid up to $12m in the year of the deal. Now Jaber George Jabbour, who formerly designed swaps at Goldman, has told the Greek government in a formal letter that it could “right historical wrongs as part of [its] plan to reduce Greece’s debt”.
Mr Jabbour successfully assisted Portugal in renegotiating complex trades naively done with London banks during the financial crisis. His work helped trigger a parliamentary inquiry and cost many senior officials and politicians their jobs. It also triggered major compensation payments by banks to the Portuguese taxpayer.
Pensioners stand outside a closed branch of the Greek National bank in Thessaloniki on June 29
Mr Jabbour, who now runs Ethos Capital Advisors, has also helped expose other cases including allegations against Goldman Sachs and Société Générale over their dealings with Libya relating to financial transactions that left the country’s taxpayers billions of dollars out of pocket. Both banks deny wrongdoing.
Based on publicly available information, he believes the size of the profit Goldman made on the transactions was unreasonable. Scrutiny and analysis of the documents and email exchanges could give Greece grounds to seek compensation and assess if the deals were executed for the sole purpose of concealing the country’s debts.
Greece’s membership of the euro gave it access to billions of easy credit which it was then incapable of paying back, leading to its current crisis. Lenders took its euro membership as a stamp of creditworthiness, but the true state of its economy was far less healthy.
Under Ms Loudiadis’s guidance, Goldman swapped debt issued by Greece in dollars and yen for euros which were priced at a historical exchange rate that made the debt look smaller than it actually was. The swaps reportedly made about 2 per cent of Greece’s debt disappear from its national accounts.
The size and structure of the deal enabled the bank to charge a far bigger fee than is usual in swap transactions, and Goldman persuaded Greece not to test the transaction with competitors to ensure it was getting good value for money.
Such deals were not uncommon among smaller countries attempting to enter the eurozone club, but they were stopped by the EU economic statistics agency Eurostat in 2008. Eurostat has said Greece did not report the Goldman Sachs transactions in 2008, when it and other countries were told to restate their accounts.
Two of the men in charge of the debt management agency of Greece at the time have argued the department did not understand what it was buying and lacked the expertise to judge the risks or costs.
One, Christoforos Sardelis, told Bloomberg news agency that Ms Loudiadis offered one swap which had what is known as a “teaser rate”, or three-year grace period. But the Greek official realised three months after signing the deal that it was far more complicated than he first thought – a situation exacerbated by the 9/11 attacks’ downward impact on global interest rates. While Goldman reworked the deal, Greece continued to lose heavily.
Saul Haydon Rowe, a partner at Turing Experts, a team of former bankers who advise in court cases involving bank derivatives, said: “Greece would have to unpick the trades completely and look into what advice was given, and how much Goldman might have expected to make over the course of the transaction.
“For a legal action to go ahead, Greece would have to show that Goldman Sachs said something it knew was untrue or which it did not care was true or not.”
Goldman said its transactions were in accordance with Eurostat rules. It said they reduced Greece’s foreign denominated debts by €2.37bn, or 1.6 per cent in terms of debt-to-GDP ratio, adding that they had “minimal effect on the country’s overall fiscal situation.”
Of course in the US these same Robber Baron frauds were occurring through any number of kinds of financial instruments and procedures. It was Obama's DUTY-----HE WAS REQUIRED AS OUR PRESIDENT to have his US Justice Department take Wall Street banks down ----nationalization was the only path to real justice. Nationalization would have had REAL justice officials investigating, creating cases, and determining this systematic fraud could only be made just by dismantling these Wall Street monopolies. If one knows there were trillions in fraud and one knows trillions more needed to come to WE THE PEOPLE and our government coffers in damages----we all know what Obama and Congress allowed to happen was the same as happened to Greek citizens. The idea that America has been taken by such a motley crew of lying, cheating, stealing sociopaths is UNACCEPTABLE----as we are forced to read in our national mainstream media ---the very people perpetrating these crimes telling us what we cannot do in seeking justice.
Goldman Sachs came back with this next scheme of US bond fraud and we can bet national media will be outing these same Wall Street banks as the cause---but will not be able to find any real fraud---it was only greed.
When we sit in our US cities listening to Wall Street players telling us Baltimore has no revenue----we must prostrate ourselves to the same global corporations and Wall Street that is killing us----we want to remember from where we will be seeking justice when WE THE PEOPLE GET RID OF WALL STREET PLAYERS.
The idea that any of these Wall Street banks are able to still operate in any avenue of our US economy is ASTOUNDING---and yet they are in our communities being called CHARITABLE DONORS.
Dr. Doom: Nationalizing Banks is 'Market Friendly'
Tuesday, 24 Feb 2009 | 6:31 AM ETCNBC.com
COMMENTSStart the Discussion
Nationalizing insolvent US banks is the best solution to avoid a Japan-like scenario in which 'zombie' financial institutions would eat up public resources while the US economy would teeter on the brink of depression, Nouriel Roubini, economics professor NYU and chairman at RGE Monitor told CNBC Tuesday.
Goldman Sachs CEO warns against nationalization
Von Jörg Eigendorf and Sebastian Jost | Veröffentlicht am 07.03.2009 | Lesedauer: 15 Minuten
Lloyd Blankfein has managed to avoid mayor disasters while leading Goldman Sachs through the crisis. The most influential banker on Wall Street is now hoping for the markets to recover. He thinks that Senior executives should be required to retain most of the equity they receive at least until they retire. Blankfein even has a piece of advice for the EU.
Meeting the CEO of Goldman Sachs during his visit to Europe is not easy. In Brussels, Lloyd Blankfein, finally found a gap in his schedule for a one-hour-interview. Exactly one hour and not a moment longer - he still has to meet with senior European politicians. Since the financial crisis began there is not much time to talk to journalists - it is Blankfeins first interview since September 2007. Two days later we met him again, together with a small group of high-ranking business and political leaders, for breakfast in Berlin's Axel Springer publishing company. Blankfein does not have airs and graces. That might have something to do with his background - the son of a mailman grew up in the Bronx.
WELT ONLINE: Former US Treasury Secretary Hank Paulson has a saying: In bad times, nothing is as bad as it seems. Do you agree?
Lloyd Blankfein: Lately, my experience has been somewhat different. When things are going badly, we often think, “It can’t get any worse.” But time and again the last few months have shown that is not true.
WELT ONLINE: That sounds fatalistic. Is the economy really so bad off?
Blankfein: Actually I am an optimist. When almost everyone is seeing black, I am one of the few who try to see the light at the end of the tunnel. I expect the capital markets to start turning around at the end of the year, with an economic recovery to follow in 2010. On the other hand, I am a banker and therefore also a risk manager; so I have to be ready for the worst.
WELT ONLINE: In other words, you plan to eliminate all exposures
Blankfein: We have become even more careful. There are some events, the probability of which are very low, but the consequences of which can be disastrous. The terrorist attacks on September 11th and the Lehman bankruptcy made this clear. Companies that are not constantly aware of such possibilities put their own existence at risk.
WELT ONLINE: What was your experience in the days following the Lehman collapse? At the time, whether the bank would survive or not was not in your hands, however well you were prepared. True?
Blankfein: You are never completely in control. But it became clear to us on that weekend that Wall Street was facing a crisis. I don't think there was a single employee who was not at work that Sunday evening.
WELT ONLINE: How could a banker with as much experience as Hank Paulson believe that Lehman Brothers would not put the system at risk?
Blankfein: I can’t speak for how Hank felt but, in my opinion, there were two opposing objectives at play: On the one hand, the government wanted to protect the financial system. On the other, the banks could not be allowed to assume that they would be saved regardless of what they did. So the decision is defensible, if not universally accepted. And I admit that I did not expect the aftermath to be as bad as it has been. In fact, I can’t remember anyone predicting it would be so bad.
WELT ONLINE: The government then acted quite quickly to supply the major US banks with capital, and avoid any further spread of the damage. Would Goldman Sachs be bankrupt today if they had not done so?
Blankfein: No. Just two weeks before, we had successfully raised capital. Warren Buffett invested five billion dollars in Goldman Sachs and, one day later, we raised a further $5.75 billion in the market. We had enough capital when the government intervened. The bank was never in imminent danger.
WELT ONLINE: There were rumours that the White House had asked Buffett to invest the five billion.
Blankfein: That’s not correct. We contacted him and he expressed interest in investing in Goldman Sachs. We asked him if he wanted to examine the books first. And he said: ”No, I trust you.” It was a matter of trust.
WELT ONLINE: Some banks are in danger of nationalisation. Do you find this appalling, or is a more pragmatic approach called for in such times?
Blankfein: I don’t think that nationalizing banks is a good solution. Governments are generally not good managers of commercial assets. What is essential is that the financial system is stabilized and governments need to be pragmatic in their approach. By which I mean, in certain circumstances, it makes sense for a government to take an ownership stake, but it should try to avoid having to take full control.
WELT ONLINE: And if it is ultimately unavoidable, such as in the case of Hypo Real Estate in Germany?
Blankfein: There may be some extreme situations in which there is no alternative. The rule in such cases must be: If the taxpayer has to provide the company with all of its capital, the company must belong to the taxpayer. Otherwise, the government ends up taking all the risk without benefiting from the opportunities.
WELT ONLINE: But the right moment had come in the case of Citigroup and General Motors, wouldn't you say?
Blankfein: I think there are two different issues to consider. First, neither company has been completely taken over by the government. In the case of Citigroup, the potential for systemic risk was clearly thought to be real and had to be averted. As for General Motors, the social implications of failure were huge. We’re talking about the fate of thousands of people.
WELT ONLINE: But the politicians are bound to interfere in the running of the business once a company is nationalised.
Blankfein: I don’t think that will happen to any great extent. Politicians certainly don’t want to be responsible for decisions like which line a business a bank develops or which factory is to be closed down.
WELT ONLINE: You also had your moment in the political limelight. Were the congressional hearings a nightmare?
Blankfein: No. I have great respect for our political representatives, and what I have seen over the past few months has served to increase my respect. The Administration and Congress moved very fast to address problems and did so in the face of considerable opposition.
WELT ONLINE: Did you feel like you were on trial ?
Blankfein: No. It certainly wasn’t much fun to be there, but the public deserve answers and it is right that their elected representatives should ask questions.
WELT ONLINE: At a similar hearing, the CEOs of American car makers were the subject of criticism and ridicule for flying in on private jets. How did you get to Washington for your hearing? By bicycle?
Blankfein: The same way I always do – on a scheduled flight from New York to Washington. A plane leaves every 30 minutes.
WELT ONLINE: Why did Goldman Sachs come through the crisis in a better position than all of the other major western banks? Was it luck or skill?
Blankfein: We've been lucky for the last 140 years! No, seriously, in sports the best teams win perhaps 70 percent of the games. Even the best team loses three out of every ten games. It would be foolhardy for a banker to think that he or she can always be right. The important thing is to have a well-conceived risk management system in place and a culture which reinforces that system. I am proud of our risk management and the cultural attributes that underpin it. But, we didn’t get everything right and, in a business like ours, where risk taking is at the core of what we do, we won’t get everything right. I’m very conscious of the dangers of hubris and you will never get me to agree that we’re better than everyone else.
WELT ONLINE: Goldman Sachs is said to have the world's best risk management system. But is there anything you have learned from the crisis?
Blankfein: We learned that we shouldn't concentrate so much on historical data, that concentrated risk is dangerous and that we should be more in tune with our gut instincts. Our decisions are based on models, discussions and experiences. The future cannot be predicted based on the past alone.
WELT ONLINE: A stable financial system depends primarily on effective banking regulation. Would you agree with this statement?
Blankfein: Too much is expected of the regulators. It was not only the banks who failed in the run-up to this crisis, regulators made mistakes as well.
WELT ONLINE: It sounds as if, despite all of the criticism against the banks, we should leave them to regulate themselves after all.
Blankfein: In my opinion, self-regulation has its limits. Fixing a system-wide problem, elevating standards or driving the industry to a collective response requires effective central regulation and the convening power of regulators. Capital, credit and underwriting standards should be subject to more “dynamic regulation”.
WELT ONLINE: But the rules set up by government also fail to achieve their goals. The mark-to-market requirements, for instance, only served to intensify the crisis.
Blankfein: Wait a minute. The discipline of marking to market is an essential element of effective risk management. How can you manage your risk if you don’t know the real value of your assets and liabilities? I would argue that not using fair value accounting techniques has been the cause of much of the trouble the financial services industry is facing today. If banks had recognized that they were losing money on certain activities sooner, it is logical that they would have reduced their exposure or stopped engaging in transactions that were generating losses much sooner than they did. Now the world is faced with problems that might well have been avoided if banks had been focused on the real value of their positions.
WELT ONLINE: Even though such rules are like fuel on the fire?
Blankfein: If banks had been rigorous about marking to market, it is very possible that the fire wouldn’t have started in the first place, or would have been easier to contain. The lack of discipline is already reflected in the share price of banks the market considers to be at risk.
WELT ONLINE: The bonuses that banks were paying their employees – those were irrational. And Goldman Sachs is rumoured to have paid the highest bonuses on Wall Street.
Blankfein: In my view, the important issue is that bonuses, which are essentially deferred compensation, should properly align the interests of shareholders with those of the firm’s employees. The percentage of the discretionary bonus awarded in equity should increase significantly as an employee’s total compensation increases. An individual’s performance should be evaluated over time so as to avoid excessive risk-taking. To ensure this, all equity awards need to be subject to future delivery and/or deferred exercise. Senior executive officers should be required to retain most of the equity they receive at least until they retire, while equity delivery schedules should continue to apply after the individual has left the firm.
WELT ONLINE: You also received 40% of your 68 million dollar bonus for 2007 in cash.
Blankfein: That is correct. But the rest was in Goldman Sachs stock, 75 percent of which cannot be sold before I leave the company. And, in these difficult times, I think the principle of tying the interests of shareholders to those of employees has worked. A significant portion of my bonus was wiped out by the decline in our share price. And you should also remember that in 2008, we made a profit of $2.3 billion during a very difficult year, but our senior leadership team recognized that the right thing to do was not to receive any bonus at all.
WELT ONLINE: Does it make sense to you that banks pay so much more than industrial companies? This attracts a great deal of talent from other important areas of the economy.
Blankfein: If it were up to me, high school teachers would earn much more and baseball players, actors and bankers significantly less, but I don’t think there is a really effective way of dictating compensation. Systems that have tried this are not very efficient. In any event, right now the problem is being solved in large part by the market
WELT ONLINE: Some people are saying that Goldman Sachs is also on its way to obsolescence. This is based on the fact that, unlike other investment banks, you know longer intend to take deposits from the public to fund your capital market activities.
Blankfein: I find this absurd. First, retail deposits cannot be used to fund capital markets activities. And, second, if deposits were the key, Wachovia and Washington Mutual would be the picture of health right now. In reality, however, both of those banks have collapsed. You should also bear in mind that large deposit-taking institutions are very dependent on financing from the capital markets and, right now, are the largest users of the US government’s funding guarantee scheme..
WELT ONLINE: Would it not then make sense to reintroduce the dual banking system, which prohibits investment banks from taking customer deposits?
Blankfein: It would make sense to consider it. The Glass Steagall Act of 1932 ensured that certain risks could only be taken by investment banks, to prevent retail deposits from being endangered in the event of a crisis.. That worked well for many years after the Great Depression but, over the past several years, commercial banks have taken on such immense risks that the entire system has been endangered.
WELT ONLINE: In other words: no change of strategy. Despite the fact that Goldman Sachs is no longer officially an investment bank?
Blankfein: We are now a bank holding company subject to supervision by the Federal Reserve. But what does that change? At our heart, we are still an investment bank, and we will continue to focus on what we do best: providing advice and financing and co-investing with our clients.
WELT ONLINE: So you will be a gigantic hedge fund that earns most of its income in proprietary trading?
Blankfein: No. We are financial intermediaries and our primary commitment is to our clients. Would you say that an insurance company was trading on its own account because it took on the risks that its clients did not want to carry and sold them in the capital markets? That is exactly what we do. And, by the way, only a small percentage of our income is derived from proprietary trading. If we were a big hedge fund, how could we be number one in M&A or have such a large market share in fixed income and equities? These are client-oriented businesses.
WELT ONLINE: Isn't the US model of capitalism and idea whose time has passed? Laisser faire is not always the answer.
Blankfein: The economic system is changing constantly. Market upheavals have occurred in the past and will certainly happen in the future. Questioning the system is both understandible and, frankly, healthy. There are obviously things that need to be improved and changes that need to be made. But the efficient distribution of capital and the encouragement of entrepreneurialism, which are at the heart of capitalism, create greater opportunities for many more people than centrally-planned alternatives.
WELT ONLINE: Does the crisis shift the balance of power in favour of Europe?
Blankfein: There are significant problems in both Europe and the United States. The question now is whose problems are larger, and who will tackle them first?
WELT ONLINE: The capital markets seem to be putting their money on America – the dollar continues to gain strength.
Blankfein: The high price of the dollar against the euro is attributable to euro weakness rather than dollar strength. Europe has a number of unsolved problems. For instance, what happens if an EU country suddenly has financing difficulties? The common currency means that problems can no longer simply be inflated away. How much is the country itself responsible for? How much should come from the European Union? Unanswered questions unnerve markets. .
WELT ONLINE: You don't seem to be very optimistic towards Europe.
Blankfein: The issue is how the EU will respond to problems among its weakest members. If the stronger member states recognize that it is in the EU’s collective interest to support weaker countries and work towards even greater integration, then I believe the Union will emerge stronger and better equipped to deal with the challenges it faces. However, if the political will to address the problems is lacking, then I fear the EU itself may come under pressure. That said, I believe Europe will resolve its issues and emerge stronger.
WELT ONLINE: And what effect will your scepticism have on Germany? Job cuts? Or perhaps closing of Goldman Sachs Germany?
Blankfein: We remain fully committed to Germany. We have been successful here for two decades and I don’t think that any global bank can thrive without a strong presence in Germany.
WELT ONLINE: You have made it from your beginnings as the son of a postal carrier in the troubled Bronx section of New York City to the top of the largest investment bank. Do you see yourself as proof that the American dream can come true?
Blankfein: I ended up with the winning ticket in the American Dream Lottery. But I think we have a long way to go in terms of equal opportunity for all Americans. That is why I donate scholarships to Harvard and work with foundations dedicated to helping people to escape from poverty. We must increase our efforts to ensure that the benefits of capitalism are distributed more fairly and provide greater opportunities for people to receive a good education and pursue fulfilling careers. And this applies not only in America, but in the rest of the world as well.
Besides the Wall Street banks this is to where all those trillions of dollars in fraud ended-----as we listen to our US cities deemed Foreign Economic Zone WALL STREET PLAYERS and Wall Street Baltimore Development 'labor and justice' organizations tell us we need to go to these global corporate campuses for PATRONAGE and not justice------
This coming bond market collapse and economic crash will super-size the fleecing of American government coffers and people's pockets.
All of last decade's frauds were sent overseas to expand multi-national corporations in International Economic Zones around the world----this decade's bond market fraud will be used to do the same with our US CITIES DEEMED FOREIGN ECONOMIC ZONES.
ALL OF THIS MUST BE COMING TO OUR US CITIES AND TOWNS AS JUSTICE FROM FRAUD-----WE ARE NOT BEGGARS---WE ARE VICTIMS OF CRIME.
Ivy League Endowment ReturnsBy Douglas Tengdin
Imagine you’re a college Trustee looking at the endowment. You have some investment expertise—a personal portfolio that does well, maybe an investment company. You want to earn 5% to fund annual distributions to support the budget, 2% for inflation, and maybe 2% more to grow the principal. Above all, you want to beat your rivals. It galls you when they sit atop the standings, and you get a strong sense of satisfaction when you’re ahead.
Endowment management wasn’t always a competitive sport. 150 years ago, colleges would receive lands and estates in bequests, and tending to these meant mainly visiting the properties and collecting rent. Then came John Maynard Keynes and a revolution in endowment management. Keynes saw that the endowment’s long time horizon would allow it to make a substantial commitment to more volatile securities. So he shifted his school’s portfolio—King’s College, Cambridge—away from real-estate and into public equities.
Gradually, institutions in the US adopted this approach, managing their portfolios for total return, taking a percentage of the total endowment for annual support. In fact, there was a vigorous debate in the ‘70s as to whether portfolio gains could be legally considered “income.” But by late in the 20th century, the question had been settled. Private colleges and universities had a clear mandate: earn enough to support the college, compensate for inflation, and grow the corpus—without taking inordinate risk.
Since the ‘70s public stocks and bonds could have done this. A 60/40 blend of S&P 500 stocks and domestic investment-grade bonds returned 10.4%–just enough: 5% for the school, 3.4% for inflation, and 2% for growth. Along the way, there would have been some headaches—a 20% decline in 2008; a 13% pullback from 1999 to 2002. But you could sleep well, knowing that the College endowment was invested in a broadly diversified mix of liquid stocks and bonds that would grow with the economy.
But that approach didn’t do the job the last decade. Over the ten years from 2004 to 2014, that 60/40 blend returned only 7.1%. Enough for distributions, but not enough even to keep up with the 2.3% annual inflation rate. You could enhance returns by allocating more to stocks, but only at the cost of bone-jarring volatility. The stock market fell over 50% in the aftermath of the internet and housing bubbles.
So colleges have turned to alternatives, investing in global securities, real assets, private equity, and innovative strategies to enhance returns and reduce risk. After all, college endowments are long-term investors. They don’t have to be 100% liquid 100% of the time. They can give up some liquidity in exchange for better returns. At least, that’s the way it’s supposed to work in theory.
Chart 1 – Source: University Endowment Offices, Bloomberg
How has it worked in practice? Chart 1 gives a picture:Using each school’s fiscal-year returns, starting in 2004, we see that Yale, Harvard, and Dartmouth did far better than a traditional 60/40 blend for the first three years. During the Financial Crisis, however, all three schools suffered serious setbacks. Building projects were postponed; staff were laid off. It was widely reported that the “Endowment Model”—pioneered by Yale’s Chief Investment Officer David Swenson and widely adopted by institutions around the country—was broken.One of the problems with illiquid investments is that you have to be careful to manage all the demands on your cash. During normal times, this is pretty straightforward. The endowment’s contribution to the budget can be planned. But some investments can call for cash contributions at inopportune times, and the Financial Crisis was certainly inopportune.
During the downturn, Harvard actually had to sell some of its illiquid investments. This creates a perverse pricing situation. In order to place an illiquid issue, a manager often has to sell the best quality securities. These can sell at a deep discount to their economic value, while poor-quality assets can remain model-priced and skate along at fair value. These low reference points hurt related high-quality assets, although only the seller suffers any permanent loss.
Chart 2 – Source: University Endowment Offices, Bloomberg
Over the past five years everyone’s portfolio has recovered from the downturn. Over the ten years that include the Crisis, Yale and Columbia have the best returns. Let’s assume 8% as a baseline requirement–spending plus inflation plus growth. Cornell, Brown, and Penn have just met this standard; Harvard and Dartmouth are just a little higher, and Princeton, Yale, and Columbia hold top honors. The multi-million dollar salaries the schools pay to their investment staff seem well-worth the price. The total value of all Ivy endowments is now more than $100 billion; their cumulative excess return above the 8% bogey over the past decade is more than $15 billion.But absolute return isn’t the full story. Stuff happens; risk matters. We saw this during the downturn. The following is an XY chart of return and risk during the same 10-year period. For the purposes of this analysis, we measure risk using the standard deviation of returns, a measure widely-used in the investment industry and in academic studies.
Chart 3 – Source: Univ.Endowment Offices, Charles A. Skorina Associates, Bloomberg
Here the clear winner is Columbia. They’ve achieved the best return for the level of risk taken. CIO Narv Narvekar has overseen Columbia’s endowment since 2002. He has managed to achieve an 11% return on their endowment with a risk level roughly equal to Dartmouth’s.Part of Columbia’s success comes from its structure. Columbia has set up an independent, nonprofit subsidiary, the Columbia Investment Management Company, to oversee its $10 billion endowment. The IMC employs twenty people. They have enough staff to evaluate complex strategies; to do in-depth analysis of outside managers; and they can maintain a level of detachment from the fads and fashions that tend to dominate the world of investment consultants.
Most significantly, Columbia’s Investment Management Company has a great deal of independence. Rather than serving as part of the University’s administration, or reporting directly to the Trustees, they takes their direction from a Board that includes leading investment professionals from among their alumni, as well as a few senior school officials. This independence is critical to their success. Prior to the Financial Crisis, Narvekar chose to maintain a highly liquid position. This put them in a position to profit from the volatility of 2008-9, rather than be a victim. As a result, Columbia didn’t have to make as many drastic cuts. Yale’s David Swenson enjoys similar freedom, but that’ more a result of his 20+ year tenure in the CIO position and his larger role as a true thought-leader in the investment management industry.
On the athletic field, Columbia is rarely competitive. Dartmouth defeated Columbia 27-7 last Fall—part of the Lions’ 19-game losing streak. But their money-management team is first-class—supported by an outstanding governance structure.
So what are some bottom-line lessons from this $100 billion tale?
- Set your objective based on your needs, not some random benchmark.
- Stuff happens, so liquidity matters. Giving up liquidity can have unforeseen costs.
- Risk matters; risk-adjusted returns are the best measure of investment skill.
- Governance is perhaps the most under-rated factor in investment performance
Baltimore has been fleeced the most of any US city because we have a captured government controlled by a very, very, very, very neo-conservative Johns Hopkins and its Wall Street Baltimore Development. Our city's assets were literally absorbed in expanding Johns Hopkins globally. Yes, HIGHSTAR global investment firm is mostly AIG's fraudulent gains spun off----and yes, HIGHSTAR is tied to most Wall Street financial deals in our city. Who are the STAKEHOLDERS in all the coming US Treasury and municipal bond fraud tied to Maryland and Baltimore? Well, look at the global corporate campuses getting all the funding---and you will see to where all that bond fraud debt will go----
BALTIMORE CITY HALL HAS A DUTY TO DEFAULT AND DEFLECT ALL THIS BOND AND WALL STREET DEAL FRAUD AND NOT TIE OUR CITY TO WORLD BANK, IMF, AND THE WALL STREET BANKS THAT DEFRAUD US.
City of Baltimore is on a path to financial ruin, report says
Published February 06, 2013
FILE: Pedestrians make their way with downtown Baltimore in the background. (AP)
WASHINGTON – The Baltimore city government is on a path to financial ruin and must enact major reforms to stave off bankruptcy, according to a 10-year forecast the city commissioned from an outside firm.
The forecast, obtained by The Associated Press ahead of its release to the public and the City Council on Wednesday, shows that the city will accumulate $745 million in budget deficits over the next decade because of a widening gap between projected revenues and expenditures.
If the city's infrastructure needs and its liability for retiree health care benefits are included, the total shortfall reaches $2 billion over 10 years, the report found. Baltimore's annual operating budget is $2.2 billion.
The report was prepared by Philadelphia-based Public Financial Management Inc., a consulting firm that has prepared similar forecasts for Miami, Philadelphia, Pittsburgh and the District of Columbia. Baltimore's decision to commission the forecast differs from those cities because each of them had already ceded financial oversight to the state, or in the district's case, the federal government.
The forecast will provide the basis for financial reforms that Mayor Stephanie Rawlings-Blake plans to propose next week. The city has dealt with budget deficits for the past several years, closing a $121 million gap in 2010. But those deficits have been addressed with one-time fixes that haven't addressed the long-term structural imbalance.
"When you have budget after budget and you know that there are systemic problems, I felt an obligation to do more than what we have done in the past," Rawlings-Blake told the AP. The forecast, she said, shows that the city needs to address its financial woes "before it's too late, and somebody is coming in and making these choices for us."
That's what happened to the District of Columbia, 38 miles to the south, in 1995 after the city reported a budget deficit of $700 million. Congress created a financial control board that instituted tight spending controls and ultimately took over all hiring and firing in nine city agencies. The spending cuts, combined with a robust regional and national economy, drove the nation's capital back into the black.
Not all municipalities have been so fortunate. In late 2011, Jefferson County, Ala., filed the nation's largest-ever local government bankruptcy, citing $4.15 billion in debt, and last year, Stockton, Calif., became the largest American city to declare bankruptcy.
In Baltimore, the erosion of the tax base is easy to see. The city's population has dropped from a peak of 950,000 in 1950 to 619,000 today, and while the decline has slowed, there have been few signs of the trend reversing. The median income is $40,000, and 22 percent of the city's residents live in poverty, according to Census data. The city also has 16,000 vacant properties.
Baltimore already has the highest property taxes in Maryland -- twice as high as in neighboring Baltimore County. The city's local income taxes are the highest allowed under state law. While the city enacted some new taxes to deal with the 2010 deficit -- including taxes on bottled beverages and higher hotel and parking levies -- city officials say they can't tax their way out of the problem without driving away residents and businesses.
"We've got to go from a vicious cycle to a virtuous cycle. That starts with a good, stable fiscal foundation for the city government," said Andrew Kleine, the city's budget director. "When you've lost so much population and the tax base has shrunk, it's very difficult to deal with."
If the city chose to use its reserve fund to cover the deficits, the fund would be empty in three years, the report found.
"Quite simply, a status quo approach is not financially sustainable," the report says.
In 2010, the mayor's office released a "doomsday" budget that would have meant firing police officers and closing seven fire stations, among other cuts, and some criticized the move as a tactic intended to soften up the City Council to approve tax increases.
But officials say the new forecast doesn't envision a worst-case scenario. It assumes modest economic growth nationwide over the next decade, said Michael Nadol, a management director at PFM and a lead author of the report.
Rawlings-Blake said the report was intended to be an honest assessment.
"It's not like we've had rosy budgets over the past five years, and now we're screaming that the sky is falling," she said.
Rawlings-Blake, a Democrat, became mayor in 2010 after Sheila Dixon resigned as part of a plea deal for stealing gift cards donated to the city for needy residents. She was elected in 2011 and has nearly four years remaining in her term.
Health care benefits for retired city workers will be a major drag on city finances in the future, according to the forecasts. The city still faces increasing pension costs despite a recent restructuring of the pension plans for police officers and firefighters.
Like many cities, Baltimore doesn't factor the escalating future costs of retiree health care into its annual budgets, and if that doesn't change, the city will be on the hook for another $300 million in 10 years, the report found.
While city officials declined to specify how they would address the shortfall, they said some restructuring of the retiree health plan would be necessary.
The forecast cost the city $460,000. PJM won the contract through a competitive bidding process and subcontracted some of the work, including actuarial analysis.
Shayne Kavanagh, a researcher at the Government Finance Officers Association, said the group recommends that city governments engage in long-term financial planning, but few have taken that step.
"Most government budget practices are one-time, year-by-year affairs," Kavanagh said. "What Baltimore's doing is trying to integrate a longer-term perspective."
As we saw last week with our discussion of Singapore as a Foreign Economic Zone----CITY STATE----7,000 foreign corporations including tons of global corporate factories filled that FEZ just as all other Asian and Latin American FEZ. The key to power for the global 1% Wall Street is keeping these zones filled with foreign corporations not obligated to operate under any nation's sovereign laws. THAT IS THE OPERATING MODEL AND GOAL FOR US CITIES DEEMED INTERNATIONAL ECONOMIC ZONES like Baltimore.
When we allow these global corporate campuses and their Wall Street player pols and organizations PRETEND there will be local involvement in rebuilding ONE WORLD ONE BALTIMORE----we are MOVING FORWARD to losing any resemblance of our nation, our freedom, and an ability to rebuild our civil rights and justice as we march to far-right, militaristic, authoritarian corporate rule.
BALTIMORE CITY HALL SHOULD NOT BE ALLOWING THESE ECONOMIC POLICIES TO COMPLETELY DOMINATE ANY ATTEMPT TO REBUILD A REAL LOCAL ECONOMY.
'Under Armour, always an innovator, is leading the way with a push to build local for local manufacturing hubs'.
Startup Trip to Under Armour's Lighthouse Innovation Center
by Center for Innovation & Entrepreneurship, George Mason University
Sold OutEvent InformationDescriptionJoin Startup Mason, CIE, and GMUMIX for an amazing startup innovation trip to Under Armour's new design and innovation center: the Lighthouse. Recently opened, the Lighthouse is a state of the art design and manufacturing facility. Under Armour, always an innovator, is leading the way with a push to build local for local manufacturing hubs.
Transportation will be provided from GMU Fairfax to Baltimore and back. There are limited spots available for this opportunity. If you have any questions please contact the Center for Innovation & Entreprenurship at cie.gmu/@/gmail.com or David J. Miller at dmillerq/@/gmu.edu