The Back Alley Archives

Goldman Sachs, Buffett Said to Plan Aid for Small Businesses
2009-11-17 18:20:29.922 GMT


By Robert Schmidt and Christine Harper
Nov. 17 (Bloomberg) -- Goldman Sachs Group Inc., under fire in Washington for setting aside billions of dollars for bonuses a year after getting a taxpayer bailout, is preparing to team up with billionaire investor Warren Buffett to provide assistance to small businesses, said people familiar with the matter.
The charitable effort, which may be announced as soon as today, coincides with one of the Obama administration’s top economic priorities: spurring hiring at small companies. The initiative would aim to provide assistance -- ranging from counseling to obtaining funding -- to 10,000 U.S. businesses, according to the people, who declined to be identified before the program is announced. Buffett’s Berkshire Hathaway Inc. is the largest shareholder in New York-based Goldman Sachs.
Goldman Sachs, the most profitable securities firm in Wall Street history, is trying to dispel criticism from lawmakers and pundits who portray the company as the greedy face of a financial industry whose excessive risk-taking fueled the credit crisis. Unlike competitors that make home loans and provide small business credit lines, more than 90 percent of Goldman Sachs’s pretax earnings this year came from trading and principal investments.
The company has notified President Barack Obama’s administration about the small-business initiative, according to one of the people familiar with the program.
Lucas van Praag, a spokesman for Goldman Sachs, declined to comment. Buffett didn’t reply to an e-mail seeking comment sent to his assistant, Carrie Kizer.

Blankfein and the Oracle

Lloyd Blankfein, Goldman Sachs’s 55-year-old chairman and chief executive officer, guided his firm to record profits in the first nine months of this year. The firm allocated $16.7 billion for compensation and benefits in the period, or enough to pay each employee $527,192 for nine months’ work.
Buffett, known as the “Oracle of Omaha” for his investing prowess, is the second-richest American. Berkshire, which invests in companies ranging from retailers to insurers, paid $5 billion in September 2008 to acquire preferred stock in Goldman Sachs that pays a 10 percent dividend. Berkshire, based in Omaha, Nebraska, also gained five-year warrants to buy $5 billion of common stock at $115 per share.
Goldman Sachs repaid the $10 billion it was given last year under the taxpayer-funded Troubled Asset Relief Program, plus dividends. The firm continues to benefit from federal guarantees on about $21 billion of long-term debt. It was allowed to become a bank holding company to gain Federal Reserve support and was one of the biggest recipients of funds through the government bailout of American International Group Inc.

Shrinking Payrolls

Lawmakers, unions, and media commentators have criticized the firm’s compensation, especially as the economic recovery appears to have rewarded Wall Street more than Main Street.
The unemployment rate in the U.S. rose to a 26-year high of
10.2 percent in October. Payrolls fell by 190,000 last month, according to the Labor Department.
“Goldman Sachs seems to salute no flag but their own corporate logo,” Andy Stern, president of the 2.1 million- member Service Employees International Union, said at a rally yesterday in front of Goldman’s Washington office. He accused the company’s executives of “gorging themselves” on bonuses made possible by tax money from working Americans.
Because Goldman Sachs repaid its TARP capital injection earlier this year, the government has no direct say over its pay. The Treasury has subjected seven companies, including Citigroup Inc. and AIG, to compensation restrictions.
Goldman Sachs has previously unveiled large charitable programs around the time of record employee payouts.

‘Shocking’ Pay

In November 2007, a month before awarding employees bonuses that were the biggest ever in the securities industry, the company announced plans to raise as much as $1 billion for a philanthropic fund called Goldman Sachs Gives.
The program was unveiled six months after John Whitehead, who retired as co-chairman of the firm in 1984 and oversaw its foundation, criticized Goldman Sachs’s “shocking” pay and said he’d tried unsuccessfully a year earlier to persuade the firm to donate $1 billion to charity.
The fund was formed with a $50 million contribution from Goldman Sachs and $80 million from partners at the firm, each of whom has his or her own account and can guide how the money is spent.
In March 2008, the company said it planned to contribute $100 million over five years to provide business education to women in developing nations and elsewhere through an initiative called 10,000 Women. The program has been established in 18 countries and has more than 60 partners.

Buffett’s Gifts

Last weekend, Goldman Sachs helped sponsor a Washington party to benefit a human rights group. Held at the home of Juleanna Glover, a principal in former Attorney General John Ashcroft’s consulting business, the event featured “powerful women in the media,” including journalists from CNN, the Washington Post and NBC News.
Buffett pledged the bulk of his Berkshire shares to Bill Gates’s health and education foundation in 2006. The donation, valued at $30.7 billion at the time, is the largest charitable commitment in history, according to the Chronicle of Philanthropy.
Buffett has also raised more than $5 million in the past decade for the Glide Foundation by auctioning off an annual lunch. Buffett’s late wife volunteered at the San Francisco- based charity, which offers food, clothes, shelter and health care to the needy.

I wondered if it ever dawned on Blankfein or his partner in this charity binge Warren Buffett -- also a Goldman shareholder -- that this money may be theirs to do as they please. Such a major donation like this one, I am told by one prominent Wall Street CEO, should have been approved by all shareholders, blessing from the Oracle of Omaha notwithstanding.

Buffett, of course, is a legendary leftie so I understand where he's coming from; Blankfein, less so, which makes me all the more suspicious. The firm will use the money to provide educational aid and funding for 10,000 small companies. These are among the hard hit victims of the banking crisis because they can't get loans and financing to expand and in many cases survive.

But that doesn't mean any of this is right. The last thing shareholders need is such overt do-gooderism. If Goldman isn't the evil empire some in the media proclaim it to be -- populating government with its former foot soldiers who then craft economic policy to advance the firm's agenda -- then there's no need to spend shareholder money, at least not so much of it, on charity. And what say did the rank and file shareholder have in such a major cash layout? None, which should spark plenty of debate among shareholder rights advocates even if their saintly Mr. Buffett is throwing his full support behind the measure.

All of which brings me back to Lloyd Blankfein, who has spent the past four months trying to figure out how he can justify accumulating an expected $20 million in bonus money that will be handed out to his flock of bankers and traders in the coming weeks. The bonus bonanza comes just a year after Goldman was ready to go under with the rest of the Wall Street risk-takers. And were it not for extraordinary measures to prop up entities like AIG, which insured Goldman's risky assets and designated Goldman a commercial bank (meaning it was protected by the Fed) on top of a $10 billion loan, Goldman would now be in Lehman Land.

Yet it survived because of the government (translation: The American Taxpayer), and now as it maintains many of those same perks, Goldman has become immensely profitable and is building a war chest of bonus money mirroring pre-financial crisis levels. It is an odd circumstance that the home of the free market -- Wall Street -- makes money feasting off of government protections, but that's what's going on across the financial business as bonus pools begin to swell with profits. Goldman just does it better than any of its peers. That's why you're hearing Blankfein making so many dopey statements of late -- everything from his ridiculous claim Goldman wasn't bailed out, that its exposure to AIG was minimal, to some of his recent whoppers, like he doing God's Work whenever he trades a stock or completes an investment banking deal.