The Decline of the Goldman Sachs Brand

This weekend Wall Street Journal ran an interview with Robert Rubin yesterday in which he was surprisingly defensive about his role at Citigroup over the past decade. Here are some highlights:

  • He passes the buck to the executives throughout the interview claiming “they did not execute properly.”
  • His $115mm in compensation (before options!) over the past 9 years was totally justified and that he could have made more money elsewhere.  Passed on his bonus last year.
  • At the outset of his engagement with the firm, he wanted no opearting authority so he could have more time to flyfish and pursue other passions in his life.
  • Nobody saw the perfect storm coming that has created the financial crisis of ’08

Meanwhile in only two short months, Hank Paulson has done serious damage to his professional reputation as he failed to stay consistent for even one of the past 10 weeks or so.  First, TARP fails to pass congress.  Then when it does it doesn’t buy bad assets, preferring direct infusions of capital and nobody knows what’s happened to that money.    Now TARP  could be used for auto companies or home mortgages or maybe to finish off the new Jets/Giants Stadium.

Rubin, Paulson, and  Jon Corzine ran GS for approximately 15+ years from the late 80’s until Paulson took over at Treasury in 2004.  Paulson was instrumental in taking GS public a move that was controversial within the firm because some partners feared that they would struggle to maintain Goldman’s high standards as a public company and would succumb to the the pressures of quarterly earnings.

It is worth noting that Goldman’s current management has performed quite well (much better than other banks) during this process.  Goldman unwound many of their toxic positions (as far as we know) a year ago.

But Rubin’s “it wasn’t me” interview and Paulson’s “deer in the headlights” leadership have weakened their reputations and, whether GS’s current leadership likes it or not, the three politicians are deeply intertwined with Goldman’s brand.

I can’t help but think that Rubin saw his role at Citigroup as a well paid consulting role — a gift for a job well done as Secretrary of Treasury from 92-98.  I have no issue with  former public officials  collecting their paydays after time well served as our public officials.  Clinton charges  tons of money for speeches and that’s his right.  But I find it  disconcerting and possibly even disingenuous that Rubin doesn’t realize that $10mm a year (cash not  including equity) is an aggressive pay package for a non-opearting executive who has presided over a 70% decline in shareholder value during his tenure.  Shouldn’t he be more apologetic?  The defensiveness in the WSJ article reads like a creative teenager who knows he bears more guilt than he cares to admit.

During the early days of the TARP crisis, I worried that Secretary Paulson was too emotionally invested in Wall Street generally and Goldman specifically to think clearly.  I’m sure his assets are managed by a blind trust, but given the decline in GS’s stock price he must have been taking huge losses of wealth.  Is it possible that Paulson’s reverence for Wall Street and concern for his wealth clouded his judgement?

Perhaps Hank Paulson will become the Bush Adminstration’s Robert McNamara — the once hawkish Defense Secretary in the Kennedy And Johnson administrations who came to grips with his own failures in the Errol Morris documentary The Fog of War.   Paulson once preached deregulation at every opportunity, but presided over  the greatest systemic collapse in modern financial history.  Will Paulson own up to his failures or will he hide behind the always-available and impossible-to-combat excuse of “Nobody knew.  Who could have known?”

Both Rubin and Paulson are towering figures in the financial industry who have accomplished much in their storied careers.  However, their resumes have been at best setback and at worst undone by the past two months in the markets.  What we need from them is the honesty and integrity that made Goldman Sachs the great brand that it was for decades.  We need them to be transparent, reflective, forthcoming and most importantly, self-aware.  This history will help us to ensure our markets recover and run in a more orderly fashion in the years to come and that we place each of them where they deserve to be in the history of American Finance.


One Response

  1. Hey Aaron,

    A few thoughts. First, Rubin is not just some public official collecting a payday. His payout at Citigroup was very different from the money Clinton earned post-presidency (though we may know more about that soon). Indeed, it is different from what virtually anyone in my memory has done.

    Rubin was instrumental in getting rid of Glass-Steagall, which stood in the way of the Citicorp-Travelers’ merger. In fact, Glass-Steagall was repealed *so that* the Citigroup merger could go through. At the time, Rubin gave private assurances to John Reed and Sanford Weill that he would get Congress to overturn Glass-Steagall, and he did, lobbying vigorously for that. Without the repeally of G-S, Citigroup would have had to divest itself of major holdings. Getting rid of the regulation was worth billions to the company. And they payout for Rubin, who took a job at Citigroup almost immediately upon leaving his govt job, was huge: $115 million in cash for doing very little, as he proudly notes. This is not your average conflict of interest. It is epic.

    Second, I doubt he’s made much on his options, given the decline in stock price. (Though as I understand it he got free travel and other perks from Citigroup in addition to his salary.) Though why Citigroup stock is worth more than $0 is itself an interesting question. Why did the Treasury not do to Citigroup shareholders what it did with shareholders of Fannie and AIG: wipe them out? Seems only fair when the govt injects more in cash ($45 billion) than the company’s market capitalization (now $40 billion). Did Rubin have a hand in that particular theft? But that is perhaps a separate issue.

    Third, given that Rubin has presided over an astonishing collapse of the Citigroup share price, and given these Swiss UBS execs are now paying back bonuses that they earned in past years — out of a sense of shame or general responsibility — one wonders at Rubin’s reaction (I could have made more elsewhere). Rubin seems to be missing the shame gene.

    Fourth, I love his “nobody was prepared for this” line. That is, simply put, a lie. Plenty of people predicted this. Any reader of Roubini’s blog saw this coming miles away. Lots of smart hedge fund operators have made a killing preparing for this, possibly including Soros. When Rubin says “nobody” he really means “I.”

    Last point, small one: as I understand it Paulson was forced to sell his Goldman shares before taking over as Treasury Sec. Still, not a bad deal for him since they were sold at a value far about what they are now, and most importantly: he did not have to pay a penny of capital gains on the sale, since he was forced to sell them to become a govt official. So all in all becoming Treasury Sec earned him a very nice payout, again on the taxpayers’ dime.

    There is still lots to be said about Rubin and I hope journalists start to focus on this. Maybe he overreached in this WSJ interview, and maybe that will be his downfall. He certainly has lots to be defensive about. Thanks for pointing it out.

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