Goldman Has Rich Economic Policy Legacy
MELISSA BLOCK, host:
Not long ago, Treasury Secretary Henry Paulson was one of those heads of a major financial company. He came from Goldman Sachs, as did a lot of his closest advisers. Since the days of President Franklin Roosevelt, Goldman has been a kind of farm team of economic policy talent. Back in 1942, FDR tapped a Goldman executive to help lead the war production board. Other Goldman alumni include former presidential economic adviser Steven Friedman, World Bank President Robert Zoellick, and former Treasury Secretary Robert Rubin. NPR's Yuki Noguchi reports now on the close relationship between the government and Goldman Sachs.
YUKI NOGUCHI: Marcus Goldman started lending credit to small businesses in 1870. He had promissory notes in his hat and took them by horse-drawn carriage to sell them to larger banks. The firm later expanded into institutional lending, underwriting bonds, stock research, and investment banking; enriching itself mightily along the way. Steven Hess is a fellow at The Brookings Institution which has had many Goldman executives on its board. Hess says the bank's reputation for public service might seem surprising.
Mr. STEVEN HESS (Senior Fellow Emeritus, Governance Studies, The Brookings Institution): Well, I think it's quite remarkable. I mean, after all, financial services businesses I guess you would say are in the business of greed. They are there to make as much money for their people as they can. And here's one at least that has this reputation, and it's deserved.
NOGUCHI: Former employees say that ethic was passed down from on high. Lisa Endlich is a former vice president at Goldman who wrote a book about the firm. She remembers the wording of the internal memo announcing former Chair John Whitehead's departure to join the State Department under President Reagan.
Ms. LISA ENDLICH (Former Vice President, Goldman Sachs): He wasn't leaving Goldman Sachs, he was going on to something that, well, you know, in service of our country sort of message, that this was an example to the rest of us. You don't get that kind of message when somebody left to, you know, just start their own business or something.
NOGUCHI: Goldman now has a base of about 12,000 employees, but it's choosy about who can join. Hiring sometimes involves 13 rounds of interviews, says Richard Linowes, another former executive who now teaches at American University.
Dr. RICHARD LINOWES (Professor, Kogod School of Business, American University): There was definitely an effort to try to get a sense for not only how smart people were, but what made them tick, what they really believed in.
NOGUCHI: Goldman Sachs puts great faith in its people, and so apparently does Treasury Secretary Henry Paulson. He brought at least four close advisers with him. Among them Neel Kashkari, the newly appointed head of the government's $700 billion financial rescue effort. But not everyone believes in the heavy reliance on Goldman grads during this financial crisis. Robert Eisenbeis is a former executive vice president of the Federal Reserve Bank of Atlanta.
Dr. ROBERT EISENBEIS (Former Executive Vice President, Federal Reserve Bank of Atlanta): My view is that there has been too much of a Wall Street focus in interpreting what the problem was. Let's look at the record. Virtually everything that he has proposed has failed.
NOGUCHI: Paulson has in fact reworked some of his original plans. Instead of focusing solely on buying bad mortgage assets from the major banks, the government said this week it will also buy shares in banks so they can get immediate additional capital. Eisenbeis says Paulson and his team miscalculated by focusing on resuscitating the banks instead of fixing the bad home loans that lie at the root of the problem.
Dr. EISENBEIS: We're talking about engaging in loan mediation. That's not what Goldman Sachs does. You really need - in this particular case, you need experience.
NOGUCHI: Like the experience of those who unwound the bad commercial real estate loans after the savings and loan crisis two decades ago. Charles Ellis published a book last week called "The Partnership" about the history of Goldman. He says the financial acumen of people at Goldman is unparalleled, but that their approach isn't always politically adept. For example, Paulson did not do a good job selling his massive rescue plan.
Mr. CHARLES ELLIS (Author, "The Partnership"): Instead of taking the time that a political process always takes, particularly when you're coming up against an election, was, I think, a tunneled vision that just missed a broader perspective that always has to be understood when you're dealing with politics.
NOGUCHI: Still, Brookings' Steven Hess says he wouldn't trust anyone else with the job.
Mr. HESS: I felt rather comfortable that somebody who's in the process of losing high retirement income - knowing that some people who I think understand the system, obviously understand it a lot better than I do, are working at this. And I should say, working tirelessly.
NOGUCHI: Secretary Paulson's job ends in a few months, but it's possible, maybe even probable, that other former Goldman alums will stick around for some time. Yuki Noguchi, NPR News, Washington.