From Goldman's "shitty" deals to Foreclosuregate"”a year-end round up of the finance industry's lowlights.
Years from now, Wall Street will look back on 2010 as a banner year, the year the industry fully turned the corner after the meltdown and the Street regained its old swagger. Just two years ago, the country's biggest banks stood on the brink of complete collapse; several storied institutions—Lehman Brothers, Merrill Lynch, Bear Stearns—either disappeared or were taken over. But in the years that followed, the surviving big banks and investment houses emerged stronger, while the rest of the American economy sank into a recession from which it has yet to fully emerge.
This new Wall Street, smaller but just as profitable, was arguably back in full force this year. Trading revenues soared. Hiring picked up. And that symbol of financial excess—the bonus—was projected to increase yet again. The way it looks, Wall Street is back to its old ways. Here's a look back on the Street's 2010 lowlights.
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Gutting Financial Reform The statistics tell the story: From the outset of 2009 to this past summer, Wall Street banks and other financial players—trade groups, insurance companies, real estate brokerages, and more—spent more than $500 million lobbying Congress on financial reform. That's $1.4 million a day. These firms' main goal: undercutting, if not outright killing, tough new regulations to prevent the next financial crisis.
In a way, you could say they succeeded. Sure, they didn't kill the bill. But the end result, known as Dodd-Frank, doesn't actually reform Wall Street. It reforms the agencies that oversee Wall Street. Apart from the creation of an independent consumer protection bureau and a new rule to ban banks' risky internal trading, there's not a whole lot in Dodd-Frank to seriously concern the big banks that caused the 2008 meltdown. As Simon Johnson, former chief economist at the International Monetary Fund, told me in June, "The legislation will not rein in [too-big-to-fail] banks and they will be at the heart of what happens next."
Partying Like It's 2004 Almost five years ago, the New York Times' business section published a story titled "That Line at the Ferrari Dealer? It's Bonus Season on Wall Street." It was a snapshot of the Wall Street high life at the height of bubble-fueled exuberance among America's financial elite.
Ah, those were the days. Now, two years after the greatest financial meltdown in generations, a cataclysm still fresh in the minds of many, you'd think Wall Street would shy away from its high-flying, Ferrari-dealer days.
Quite the opposite. In November, the Times reported on its front page that the lavish party days seemed to be back in fashion. Paired with a video showing Ferraris and Lamborghinis roaring through New York City's financial district, the story described a 1,000-person Halloween party hosted by a Goldman Sachs investment analyst at a swanky Manhattan night club (with rapper Lil' Kim performing) and a Playboy-themed birthday shindig in Hong Kong for the head of Bank of America Asia Pacific. Reservations at posh restaurants were up. So, too, were rentals in the Hamptons. "Two years after the onset of the financial crisis," the Times wrote, "the stock market is recovering and Wall Street's moneyed elite are breathing easier again."
Goldman's "Shitty" Deals On April 27, 2010, the Senate investigations subcommittee summoned to Washington current and former executives at the most reviled investment house on Wall Street: Goldman Sachs. Led by Sen. Carl Levin (D-Mich.), the subcommittee had called the hearing, the fourth in a series of public grillings likened to the Depression-era Pecora Commission, after an 18-month investigation into the causes of the financial crisis.
What transpired that Tuesday was a televised lashing of Goldman's top brass, including CEO Lloyd Blankfein. An animated Levin blasted Goldman's former mortgage guru and several top traders for essentially betting against complex mortgage products it had helped to create—and, worse yet, knew to be shitty deals.
Indeed, Goldman employees used that very word, "shitty," to describe one of the deals Goldman put together called Timberwolf, according to a trove of emails unearthed by the investigations subcommittee. The hearing will long be remembered for Levin's fixation on that "shitty" deal, with the Michigan senator at one point uttering the word "shitty" 12 times in a short span, a tirade that spawned this particularly hilarious video from Slate:
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