"Governments don't rule the world, Goldman Sachs rules the world." purported London-based independent trader, Alessio Rastani, in a jaw-dropping interview for the BBC.
The founder of Goldman Sachs, Marcus Goldman (1821 – 1904) was a German-born American businessman and entrepreneur. Goldman Sachs is now one of the world's largest and most prestigious global investment banks and a bank holding company. From his earliest days of his business, Goldman was able to singlehandedly transact as much as $5 million worth of commercial paper a year. Successful though he was, Goldman's business was insignificant compared to that of the other Jewish-German bankers of the day. Concerns like J. & W. Seligman & Co., with working capital of $6 million in 1869, were already modern-day investment bankers immersed in underwriting and trading railroad bonds. In 1882, Marcus Goldman invited his son-in-law Samuel Sachs to join him in the business and changed the firm's name to M. Goldman and Sachs. Business boomed—by 1880 the new firm was turning over $30 million worth of paper a year—and the firm's capital was now $100,000, all of it the senior partner's.
In 1970, Goldman Sachs opened its first international office in London and created a private wealth division along with a fixed income division in 1972. It also pioneered the "white knight" strategy in 1974 to boost the firm's reputation as an investment advisor, it pledged to no longer participate in hostile takeovers. In accordance with the beginning of the dissolution of the Soviet Union, the firm became involved in facilitating the global privatization movement by advising companies that were spinning off from their parent governments. In 1990 the firm pledged to focus on globalization and strengthening the Merger & Acquisition and Trading business lines. The firm introduced paperless trading to the New York Stock Exchange and lead-managed the first-ever global debt offering by a U.S. corporation. Another momentous event in Goldman's history was the Mexican bailout of 1995. The 1994 economic crisis in Mexico threatened to wipe out the value of Mexico's bonds held by Goldman Sachs. The firm joined David Rockefeller and partners in a 50–50 joint ownership of Rockefeller Center during 1994, but later sold the shares to Tishman Speyer in 2000. In 1996, Goldman was lead underwriter of the Yahoo! IPO and in 1998 it was global coordinator of the NTT DoCoMo IPO.
One of the largest events in the firm's history was its own IPO in 1999. The decision to go public was one that the partners debated for decades. In the end, Goldman decided to offer only a small portion of the company to the public, with some 48% still held by the partnership pool. As of 2009, after further stock offerings to the public, Goldman is 67% owned by institutions (such as pension funds and other banks). In 1999, Goldman acquired Hull Trading Company, one of the world's premier market-making firms, for $531 million. More recently, the firm has been busy both in investment banking and in trading activities. It purchased Spear, Leeds, & Kellogg, one of the largest specialist firms on the New York Stock Exchange, for $6.3 billion in September 2000. It also advised on a debt offering for the Government of China and the first electronic offering for the World Bank. In 2003 it took a 45% stake in a joint venture with JBWere, the Australian investment bank. In 2009 The Private Wealth Management arm of JBWere was sold into a joint venture with National Australia Bank. Goldman opened a full-service broker-dealer in Brazil in 2007, after having set up an investment banking office in 1996. It expanded its investments in companies to include Burger King, McJunkin Corporation, and in January 2007, Alliance Atlantis alongside CanWest Global Communications to own sole broadcast rights to the all three CSI series. The firm is also heavily involved in energy trading, including oil, on both a principal and agent basis.
During the 2007 subprime mortgage crisis, Goldman was able to profit from the collapse in subprime mortgage bonds in the summer of 2007 by short-selling subprime mortgage-backed securities. Two Goldman traders, Michael Swenson and Josh Birnbaum, are credited with bearing responsibility for the firm's large profits during America's sub-prime mortgage crisis. The pair, members of Goldman's structured products group in New York, made a profit of $4 billion by "betting" on a collapse in the sub-prime market, and shorting mortgage-related securities. By summer of 2007, they persuaded colleagues to see their point of view and talked around skeptical risk management executives. The firm initially avoided large subprime writedowns, and achieved a net profit due to significant losses on non-prime securitized loans being offset by gains on short mortgage positions. Its sizable profits made during the initial subprime mortgage crisis led the New York Times to proclaim that Goldman Sachs is without peer in the world of finance.
On September 21, 2008, Goldman Sachs and Morgan Stanley, the last two major investment banks in the United States, both confirmed that they would become traditional bank holding companies, bringing an end to the era of investment banking on Wall Street. The Federal Reserve's approval of their bid to become banks ended the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and capped weeks of chaos that sent Lehman Brothers into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.
Goldman Sachs was one of the heaviest users of the Federal Reserve loan facilities, taking out numerous loans from March 18, 2008 – April 22, 2009. The Primary Dealer Credit Facility (PDCF), the first Fed facility ever to provide overnight loans to investment banks, loaned Goldman Sachs a total of $589 billion against collateral such as corporate market instruments and mortgage-backed securities. The Term Securities Lending Facility (TSLF), which allows primary dealers to borrow liquid Treasury securities for one month in exchange for less liquid collateral, loaned Goldman Sachs a total of $193 billion. Goldman Sachs's borrowings totaled $782 billion in hundreds of transactions over these months. This number is a total of all transactions over time and not the outstanding loan balance. The loans have been fully repaid in accordance with the terms of the facilities.
The company’s effective tax rate dropped to 1% from 34.1% in 2007, due to tax credits and, according to Goldman Sachs, "changes in geographic earnings mix" thus reducing the company's tax obligation. Many critics argue that the reduction in Goldman Sach's tax rate was achieved by shifting its earnings to subsidiaries in low- or no-tax nations. Goldman Sachs had 28 such subsidiaries at the time, including 15 in the Cayman Islands. According to Representative Lloyd Doggett (D-TX), "with the right hand out begging for bailout money, the left is hiding it offshore."
Goldman Sachs is reported to have systematically helped the Greek government mask the true facts concerning its national debt between the years 1998 and 2009. In September 2009, Goldman Sachs, among others, created a special credit default swap (CDS) index to cover of high risk of Greece's national debt. The interest-rates of Greek national bonds have soared to a very high level, leading the Greek economy very close to bankruptcy in March and May 2010 and again in June 2011. Lucas Papademos, Greece's new prime minister, ran the Central Bank of Greece at the time of the controversial derivates deals with Goldman Sachs that enabled Greece to hide the size of its debt. Petros Christodoulou, head of Greece's debt management agency began his career at Goldman Sachs. Mario Monti, Italy's new prime minister and finance minister, who heads the new government that took over after Berlusconi's resignation, is an international adviser to Goldman Sachs. So is Otmar Issing, former board member of the Bundesbank and the Executive Board of the European Bank. Mario Draghi, the new head of the European Central Bank, is the former managing director of Goldman Sachs International. Antonio Borges, formerly head of the IMF's European Department is a former vice chairman of Goldman Sachs International. Peter Sutherland, former Attorney General of Ireland is a non-executive director of Goldman Sachs International. Karel van Miert, former EU Competition Commissioner is an ex-international adviser to Goldman Sachs. These ties between Goldman Sachs and European leaders is an ongoing source of controversy.
In February 2011, the Washington Examiner reported that Goldman Sachs was "the company from which Obama raised the most money in 2008" and that its "CEO Lloyd Blankfein has visited the White House 10 times."
Goldman Sachs' creation of the Goldman Sachs Commodity Index has been implicated by some in the 2007–2008 world food price crisis. In a 2010 article in Harper's magazine, Frederick Kaufman magazine accused Goldman Sachs of profiting while many people went hungry or even starved. He argued that Goldman's creation of the commodity index helped passive investors (pension funds, mutual funds and others) enter the markets, which disturbed the normal relationship between Supply and Demand and price levels. He argues that the result was a 'contango' wheat market on the Chicago Mercantile Exchange, which caused prices of wheat to rise much higher than normal, defeating the purpose of the exchanges (price stabilization) in the first place. In a June 2010 article in The Economist, the argument is made that index-tracking funds (of which Goldman Sachs Commodity Index was one) did not cause the bubble. It describes a report by the Organisation for Economic Co-operation and Development that used data from the Commodity Futures Trading Commission to make the case. For example the report points out that even commodities without futures markets also saw price rises during the period
