I can just imagine the frustration in the executive suite of Goldman Sachs(GS). Just when the public, with its notoriously short memory, was forgetting the "vampire squid" label that was so effectively applied to the company last year, we now have a label that is going to cling to Goldman forever. But what will it be?
"Moammar Blankfein"?
But let's not joke about this. Investment banks don't commit public relations suicide every day. In order to placate Moammar Gadhafi because the bank was afraid that Libya might not give it money anymore, Goldman abased itself in a manner that I have never seen in my life: offered to give this murderous dictator a large stake in this politically dominant investment bank.
The dalliance between Libya and Goldman Sachs, which was reported by the Wall Street Journal on Tuesday, may turn out to be the last nail in the coffin of Goldman's credibility. The fact that it didn't happen is almost irrelevant. What matters is that Goldman seriously considered such a deal at a high level, casting serious doubt on the competence of the people running this firm.
It was just incredibly stupid on several levels, and it confirms pretty much all the wild stories and conspiracy theories that have circulated about Goldman. It confirmed what we all knew already, which is that Goldman will do literally anything for a buck. It will send its employees squeegeeing vehicles on the Third Avenue Bridge. It will sell crack on street corners. I'm exaggerating, but not by much, because dealing with Gadhafi, offering to make money for that clinically insane murderer, is actually more heinous.
I don't doubt for a moment that Goldman has in its employ scads of ethical employees, scoutmasters and all that, who would never extort pocket change from motorists on the Third Avenue Bridge, but this is Goldman's "movie" moment -- something that you only see in one of those high-concept anti-business movies.
But this really happened. Let's go through the implications one by one:
Does Goldman Sachs read the newspapers? I wonder if perhaps some glitch has prevented newspapers and news Web sites from entering the Goldman building for the past 20 years. Libya is not Warren Buffett. Gadhafi runs a murderous regime that sponsored terrorism around the globe. Gadhafi was responsible for the bombing of Pan Am Flight 103 over Scotland. He ordered the bombing of a discotheque in Berlin in 1986, killing and injuring American servicemen. Lifting of the sanctions did not erase history. The idea that Goldman would consider handing a major stake in this firm -- a Jewish-founded one, by the way -- to this serial murderer is beyond fantastic.
Did Goldman consider the political implications? Let's forget for a moment (as Goldman did) that Gadhafi is a murderer. Did the firm consider the political implications, purely from the standpoint of Goldman's own self-interests? The firm isn't called "Government Sachs" for nothing, but that reflects a revolving door that isn't really at issue here. A major Libyan stake in Goldman would have given Gadhafi a dominant voice in the running of the firm, and conceivably could have led to a takeover at some point in the future. I can just see the reaction in Congress, particularly if it had gone through in 2008, prior to the financial crisis. The AIG(AIG) bailout was unpopular enough, since it was a de facto bailout of Goldman. But what if Gadhafi had a major stake in the firm at the time of the crisis? I think that might have changed the dynamic, perhaps enough to have torpedoed the AIG bailout, jeopardizing not just Goldman but all the other counterparties.
Did Goldman consider the moral implications? I hate to use a word that has been ripped out of the dictionaries of most investment banks. But in all the documents that the Journal reviewed in researching its scoop, I'd be curious to know if there is any reflection on what dealing with Libya in such a significant way would mean from a moral standpoint. Not image, not PR, not its political standing and its impact on its clients, but whether doing such a thing is right or wrong. Is my earlier metaphor correct? Will Goldman Sachs deal with literally anybody if he has cash to put in its coffers? Will it deal with Colombian drug lords? Russian oligarchs? Keyser Söze?
The Journal story implies that the "sliminess" factor did not enter into Goldman's thinking at all. Instead, the documents reveal that Goldman tried to move heaven and earth to keep its relationship with Libya alive. And there are no minions who can take the fall this time. This went right to the top. "Discussions inside Goldman about how to salvage the fractured relationship included Lloyd C. Blankfein, the company's chairman and chief executive, David A. Viniar, its finance chief, and Michael Sherwood, Goldman's top executive in Europe," the Journal reported.
We do know that Goldman is not totally out to lunch; the firm realized it was dealing with murderous thugs. A confrontation in Tripoli with a top official of the Libyan investment fund "so rattled them that they made a panicked phone call to their bosses. Goldman arranged for a security guard to protect them before they left Libya the next day, they say."
Goldman is not the only bank that has Libyan baggage. The Journal reported that other banks with Libyan dealings included Societe Generale, HSBC Holdings(HSB), Carlyle Group, JPMorgan Chase(JPM), Och-Ziff Capital Management and Lehman Brothers. All of them had canceled their newspaper subscriptions a while back, and all were willing to deal with a bloodthirsty murderer. But Goldman, as usual, outdid them all.
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