by John Byrne
September 23, 2008
It certainly pays to be Treasury Secretary if your former firm is a brokerage
house, a new study says.
Goldman Sachs Group — formerly run by Treasury Secretary Henry Paulson, and
Morgan Stanley, stand to be among the biggest beneficiaries of a $700 billion
"Its benefits, in its current form, will be largely limited to investment
banks and other banks that have aggressively written down the value of their
holdings and have already recognized the attendant capital impairment,"
Jeffrey Rosenberg, Bank of America’s head of credit strategy research, wrote
in a report obtained by Bloomberg News yesterday.
Paulson was the head of Goldman Sach’s investment banking division from 1990
to 1994. He later became chairman and chief executive officer of Goldman, and
left his post to join the Bush Administration.
According to the study, the bailout benefits Paulson’s former firm more because
banks haven’t had to write down as many troubled mortage assets under accounting
rules. This means that participating in the program would cause them to actually
lose capital, as opposed to investment banks, which stand to gain.
Paulson $700 billion program is designed to remove "bad assets" from
the US financial markets to prevent credit for businesses from drying up, which
would send the economy into a further tailspin. Many businesses rely on credit
to fund their daily operations.
Lawmakers are debating the plan today.
"While Goldman and Morgan Stanley, both based in New York, were yesterday
granted permission to transform themselves into bank holding companies, the
companies so far have operated mostly under investment-bank accounting rules,
logging almost $21 billion of asset writedowns and credit losses," Bloomberg
Goldman made sizable profits in 2007 from the subprime mortgage sector. It,
along with Morgan Stanley, has fared better than investment houses Merrill Lynch,
Lehman Brothers and Bear Stearns, because it has held a more conservative capital
Paulson has admirers: during his Goldman tenure the firm donated 680,000 acres
of land in Chile, and he has personally given away $100 million of his fortune
to charitable groups.
According to estimates conducted by Open Secrets, Paulson is the richest cabinet
member of the Bush Administration.