Monday September 01, 2014

Goldman Sachs Under the Microscope

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What’s Up With Goldman Sachs?

Goldman Sachs is an investment bank that was founded in 1869 and has become one of the most powerful financial institutions in the world. Historically, it hasn’t taken deposits like a traditional bank, but instead assists corporations and governments in raising and investing money and also provides consulting services when companies are undergoing a merger or acquisition.

The company has been under fire several times in the past few years, and once again the public’s eye is on it now. Here’s the scoop on what all the pointing fingers are about:

In 2000, the Goldman Sachs stock price was at about $100 and the rest of the stock market (the DOW average) was at about $60. In 2001 the Goldman Sachs stock price was at about $50 and the rest of the stock market (the DOW average) was at about $60. In 2002 the Goldman Sachs stock price was at about $55 and the rest of the stock market (the DOW average) was at about $45. In 2003 the Goldman Sachs stock price was at about $50 and the rest of the stock market (the DOW average) was at about $35. In 2004 the Goldman Sachs stock price was at about $90 and the rest of the stock market (the DOW average) was at about $55.

In 2005 the Goldman Sachs stock price was at about $70 and the rest of the stock market (the DOW average) was at about $60. In 2006 the Goldman Sachs stock price was at about $150 and the rest of the stock market (the DOW average) was at about $75. In 2007 the Goldman Sachs stock price was at about $220 and the rest of the stock market (the DOW average) was at about $70. In 2008 the Goldman Sachs stock price was at about $200 and the rest of the stock market (the DOW average) was at about $90. In 2009 the Goldman Sachs stock price was at about $25 and the rest of the stock market (the DOW average) was at about $115.

Facts About Goldman Sachs

The company has 32,500 employees. If they all held hands, they could surround the entire island of Manhattan with room to spare. The 2009 revenue was $51.67 billion. That’s about the GDP of North Korea and El Salvador put together. Its assets in 2009 were $849 billion. That’s about 20 times the assets of Google.

Past Controversies Insider Trading: In 1986, Goldman employee David Brown was convicted of passing inside info on a takeover deal.

Betting Against Its Own Clients: In November 2008, The L.A. Times reported that Goldman was underwriting California bonds and turning around and advising clients to short the same bonds, betting that the state would default on them. This drove up the cost of issuance to the state, and though legal, created a controversial stir.

In Bed with the Government: Goldman has been criticized for having employees move in and out of high-level U.S. government positions. Treasury Secretary Hank Paulson, for example, was CEO of Goldman Sachs.

crewing Greece: Goldman was criticized for allegedly helping the Greek government mask its national debt facts from 1998-2009. In September 2009, Goldman created a special Credit Default Swap for the national debt of Greece. Interest rates of Greek national bonds skyrocketed, and Greece nearly went bankrupt in both March and May 2010.

Big 2009 Profits: Although the company was up front about changes it was making in accounting, many people were outraged by Goldman’s high net earnings of $1.81 billion in January through March 2009, accusing the firm of hiding losses in December 2008. AIG Bailout: When the U.S. government lent about $180 billion to bail AIG out, billions of that money went to repay Goldman and other banks for their Credit Default Swap contracts with AIG. A controversy erupted as to whether these banks benefited materially or were overpaid by this government money. The New York state attorney general opened an investigation.

Conflicts of Interest: In May 2009, it was reported that NY Fed Chairman Stephen Friedman held substantial stock in Goldman Sachs as retired director and shareholder. He bought shares of Goldman stock when it was at historic lows in fall of 2008. But because of controversy arising from the move, he retired from the Fed in May 2009 even though his purchase was legal, and, according to his statement, a demonstration of confidence in times of financial distress.

Subprime Mortgages: Also in May 2009, Goldman Sachs agreed to pay $60 million to settle a lawsuit in Massachusetts for the company’s promoting of unfair home loans to the state.

Current Controversy SEC Civil Fraud Lawsuit: In April 2010, the SEC sued Goldman Sachs and one of its employees, Fabrice Tourre, alleging that Goldman misrepresented a deal to investors, causing billions in losses. Basically, Goldman created products called “Collateral Debt Obligations,” sold them to investors and then bet short against them without disclosing it. Goldman stated that the charges were “unfounded in law and fact,” and the case is still playing out. The existence of controversy itself doesn’t indicate actual wrongdoing, but with the global economic turmoil of the past two years, combined with Goldman’s recent track record, it’s no wonder this financial giant is in the hot seat once more.

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