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Let's Make a Deal, Part I - Green Shoots, World Great Depression, or a Brand New Car!

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Goldman Sachs alumni do seem to hold a disproportionate number of top Government and Federal Reserve positions and positions with exceptional Government access, a fact noticed by the New York Times as well. Neel Kashkari, Reuben Jeffrey, Dan Jester, Steve Shafran, Edward C. Forst, Robert K. Steel, Stephen Friedman, Lloyd Blankfein, William Dudley, E. Gerald Corrigan, Gary Gensler, Mark Patterson, Josh Bolton, AIG's Liddy, are all Goldman Sachs alumni.

Neel Kashkari, who runs TARP, was a Vice President at Goldman Sachs in San Francisco. In July 2006, he was appointed "special assistant" to the US Treasury Secretary by Treasury Secretary Hank Paulson. In Summer, 2008, he was appointed assistant secretary for international economics. On October 6, 2008, Paulson promoted Kashkari to interim head of the new Office of Financial Stability. Overseen by the treasury secretary, he was in charge of creating and implementing the United States government's $700 billion financial stabilization program

Reuben Jeffrey, worked for Goldman Sachs from 1983-1997, was Managing Partner of Goldman Sachs's European Financial Institutions Group, London, 1992, and Managing Partner of the Goldman Sachs, Paris, 1997. In 2008, he was appointed interim chief investment officer in the $700 billion financial rescue plan. Jeffrey is currently the Under Secretary of State for economic affairs, advises the Secretary of State on international economic policy, and he is the State Department's Coordinator for International Energy Affairs.

Do you suppose it would have helped a high rolling investment banking house such as Goldman Sachs to know in advance precisely where $700 billion was going? Tsk, tsk, Geithner would say. How deeply unfair it would be to the people who are part of these decisions to suggest that they would tell anyone in advance what they were planning. That would be selfish and not in the best interest of the American people.

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We can trust all these former bankers now in Government service to play by the rules, and say mum's the word, can't we, including former Goldman executive and advisor to the biggest banks, Kendrick Wilson, whose job it is to keep bank chiefs informed of possible Treasury plans? Or would we be chumps to believe these big shot bankers are all naïve little novice poker players like Mary in A Big Hand for the Little Lady.

Dan Jester, a former strategic officer for Goldman, has been involved in most of Treasury's recent initiatives, especially the government takeover of the mortgage giants Fannie Mae and Freddie Mac. Mr. Jester was central in the effort to inject capital into banks, a list that included Goldman.

Steve Shafran, worked in Goldman's private equity business in Asia and retired in 2000. He became involved in Treasury's initiative to guarantee money market funds, among other things.

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Edward Forst joined Goldman in 2004 and served as the global head of Goldman's investment management division. He became a Goldman partner in 1998, Paulson's first year leading the firm. He left Goldman Sachs to become Harvard's first executive vice president for a brief three weeks, before being tapped by Paulson to help draft the $700-billion bailout plan.

Robert Steel is a nearly 30 year veteran and former vice chairman of Goldman Sachs. After retirement, he assumed the position of advisory director and then senior director in December 2004. In 2005-2006, Steel served on the board of directors of Barclays Plc.

Steel was appointed Under Secretary for Domestic Finance at the US Treasury on October 10, 2006 and served until July 9, 2008. He was the principal adviser to the secretary on matters of domestic finance and led the department's activities regarding the U.S. financial system, fiscal policy and operations, governmental assets and liabilities, and related economic matters. In March of 2007, Steel testified before the U.S. House Financial Services Committee on reform of the housing Government Sponsored Enterprises (GSEs), including Fannie Mae and Freddie Mac. He said that the regulatory system for these institutions "neither has the tools, nor the stature, to deal effectively with the current size, complexity, and importance of these enterprises." He also testified that if GSEs are able to accomplish their mission, the risks must be managed and supervised. "Otherwise there may be a threat to their solvency, and importantly to the stability of other financial institutions and the strength of our economy ..."

In early 2007, Steel oversaw the creation of the Blueprint on Financial Services Regulation as part of an initiative to increase America's capital market competitiveness. The Blueprint called for the creation of three new regulators: a Market Stability Regulator to focus on the financial sector as a whole; a Prudential Regulator to focus on the safety and soundness of major financial institutions; and a Business Conduct Regulator to focus on protecting consumers and investors. According to the proposal, the Business Conduct Regulator would have been made up of a combined Securities and Exchange Commission and Commodity Futures Trading Commission. As economic conditions worsened, Steel was one of the architects of the federal government's response.

Was Robert Steel one of the good guys sounding the alarm bell, simply trying to shore up a rotten system, or was he a financial industry architect seeking to concentrate financial power? He left Government service before the big market crash in 2008 and returned to banking. On July 9, 2008, Robert Steel was named president and CEO of Wachovia. After an initial deal with Citigroup for $1/share fell through, Steel and the Wachovia board agreed to merge with Wells Fargo for $7/share, making Wells Fargo the second-largest retail brokerage in the United States. In January 2009, The Wall Street Journal reported that the Securities and Exchange Commission was investigating claims Steel made about the future of the bank before it started talks about a potential merger. The article stated, "[w]hether Mr. Steel misled investors and violated securities laws will depend on what Mr. Steel knew at the time of his comments." Following the merger, Steel was invited to join the board of Wells Fargo and currently serves on the firm's credit and finance committees.


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Stephen Friedman joined Goldman Sachs in 1966, holding numerous executive roles including Co-Chief Operating Officer from 1987 to 1990, Co-Chairman from 1990 to 1992, and the sole Chairman from 1992 to 1994; he still serves on the company board. From 1998 to 2002, he was a senior principal of Marsh & McLennan Capital Corp. In 1999, Bill Clinton appointed him to the President's Foreign Intelligence Advisory Board, and in 2005, Bush named him Chairman of the Board. From 2002 to 2005, he was United States Assistant to the President for Economic Policy and Director of the National Economic Council. Friedman has been Chairman of the Intelligence Oversight Board, an independent body that assesses the state of national intelligence, since January 2006. In January, 2008, Friedman was appointed Director and Chairman of the Board of the Federal Reserve Bank of New York by the Federal Reserve Board of Governors, headed by Federal Reserve Chairman Ben Bernanke.

Friedman spent 30 years at Goldman and had close ties to Robert Rubin and Henry Paulson. Timothy Geithner was president of the New York Fed when Friedman headed its board. While he remained with Goldman, he was also Chairman of the New York Federal Reserve Bank and had a large holding of Goldman stock even as the NY Federal Reserve Bank shaped Washington's response to the financial crisis.

The first Government bailout buoyed Goldman Sachs and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September, 2008, and a $10 billion capital injection soon after. Friedman continued to stay on as NY Fed Co-Chair even after Goldman became a bank holding company, eventually being granted a waiver to continue serving on the board until the end of 2009 in what would otherwise have been a violation of Federal Reserve policy. The kicker is that the Fed dithered for about 2 months before granting the waiver. While it was weighing the request, Friedman bought 37,300 more Goldman shares in December, 2008. (The source Wall Street Journal article is here, but it requires a paid subscription.)

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Merchant marine experience on ocean research and oil exploration vessels in my youth. Ex-mechanical engineer, oil exploration equipment industry, commercial and military aerospace industries, SCUBA diving and respiratory protective breathing (more...)
 

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