What Is Goldman Sachs?:
Founded in 1869, Goldman Sachs was a leading global investment bank with over 26,000 employees worldwide and earnings of over $11 billion in 2007. It was most known for its investment banking business, in which it helped companies, cities and foreign governments raise money through issuing
stocks or selling
bonds. However, two-thirds of its income was from trading and offering investment advice on stocks, bonds,
commodities and other financial products. Finally, it managed the investment portfolios of wealthy individuals, companies and governments.
Why Was Goldman Sachs Important to the U.S. Economy?:
Goldman Sachs was one of the most aggressive investment banks on Wall Street. In the 1980's, it put together the largest deals of that time, including the initial public offerings (IPO's) of the Real Estate Investment Trust that owned Rockefeller Center, the Microsoft IPO, and General Electric's acquisition of RCA. In the 1990's, it brokered the IPO's of Yahoo! and NTT DoCoMo. It introduced paperless trading to the New York Stock Exchange (
NYSE), brokered the first-ever global debt offering by a U.S. corporation and launched the Goldman Sachs Commodity Index. (Source: Wikipedia,
Goldman Sachs)
Why the SEC Sued Goldman for Fraud:
Was Goldman to Blame for The Great Recession?:
Goldman insists that everything it did was legal. Technically, this is true because there were no laws in place to prevent it. Lack of regulations on hedge funds and the derivatives they used was one of the causes of The Great Recession.
In fact, it is a common practice for companies to hedge risky transactions by using derivatives. This means the SEC Chair, Mary Schapiro, may go after other financial firms, such as Morgan Stanley. This will rally support for the sorely needed financial regulations bill now languishing in Congress.
Why Did Goldman Sachs Become a Bank Holding Company?:
On September 21, 2008, Goldman applied to the
Federal Reserve to become a bank holding company. This allowed it to take deposits like a commercial bank and be less reliant on raising capital in the bond market. It would be regulated by the Federal Reserve, giving it access to the Fed's discount window. All of these measures made Goldman seem like a safer investment to stockholders, who had driven down the company's share price as a result of the
Banking Crisis. (Source: Bloomberg,
Goldman, Morgan Bring Down End to an Era, September 22, 2008)
Goldman Sachs Launched U.S. Leaders:
Goldman was a highly competitive place to work, but those who made it became leaders throughout business and government. Its alumni include: Treasury Secretary
Henry Paulson; Citigroup Chairman and prior Treasury Secretary Robert E. Rubin; Bank of Italy Governor Mario Draghi; New Jersey Governor Jon Corzine, White House chief of staff Joshua Bolten; and Merrill Lynch President and former New York Stock Exchange Governor John Thain. This meant that Goldman's reach extended far beyond its business and into the highest levels of government. (Source: NYT,
Goldman's Shadow Extends Far Beyond Wall Street)
