Goldman is tightening its grip on the global financial system. The Wall Street Journal reported yesterday that Ken Wilson, Goldman Sachs’
Wilson is in, Treasury Under-secretary Bob Steel is out, having taken the top job at Wachovia
Nonsense! I’m tired of reading about conspiracy theories on Goldman -- they even surface in the Business section of The New York Times! Sure, the list of four of the last six former Goldman co-heads reveals a nice pattern:
Post-Goldman Role in Public Service |
|
---|---|
Hank Paulson |
Current Treasury Secretary |
Stephen Friedman |
Current Chairman of the Board, Federal Reserve Bank of New York |
Robert Rubin |
Former Treasury Secretary under Bill Clinton |
John Whitehead |
Former Chairman of the Board, Federal Reserve Bank of New York |
But what does the pattern prove?
First, it’s not unusual for the president to appoint the head of a Wall Street firm as Treasury Secretary (see table below). That's simply being pragmatic; after all, bank chiefs understand the workings of the U.S. financial system and are personally acquainted with all the key actors.
Tenure/ Administration |
Former Position |
|
---|---|---|
Nicholas Brady |
Treasury Secretary, 1988-1993 (Ronald Reagan, George Bush ) |
CEO, Dillon, Read & Co. |
Donald Regan |
Treasury Secretary, 1981-1985 (Ronald Reagan) |
CEO, Merrill Lynch |
C. Douglas Dillon |
Treasury Secretary, 1961-1965 (John F. Kennedy, Lyndon B. Johnson) |
Chairman, Dillon, Read & Co. |
Are we to deduce from the previous table that, prior to Goldman, Dillon, Read was the firm conspiring to dominate the financial system? If so, they didn’t do a very good job -- they were swallowed up by Swiss Bank Corporation in 1997 (now UBS
Goldman is a good fishing hole
Besides, the pool of Wall Street firms has diminished considerably through consolidation. Goldman is one of only four remaining major investment banks, along with Merrill Lynch
Finally, Goldman has (or had, at least) an edge in this numbers game, as the firm maintained a tradition of naming co-heads of the firm that were affiliated with each of the two major political parties -- that’s not a plot, just good business sense.
No conspiracy, but a potential conflict of interest
Conspiracy aside, there is a legitimate issue associated with advising the Treasury while remaining employed at an investment bank -- that of conflict of interest. The situation isn’t unprecedented, though: Ken Wilson’s former partner at Lazard Freres (now Lazard Ltd.
I’m certain that the Department of Treasury and Goldman Sachs will enact careful measures to avoid or reduce any conflict of interest. For my part, it’s a risk I’m willing to bear if it enables Paulson to get the best help he can find in the current crisis.
Now, if only I could get the word out about those silent black helicopters.
Related Wall Street Foolishness: