John Crudele: Why I distrust Goldman Sachs' good fortune

By John Crudele
New York Post
Thursday, September 27, 2007

http://www.nypost.com/seven/09272007/business/why_i_distrust_goldman_sac...

Goldman Sachs is an extraordinary company. It's the Yankees of the Babe Ruth era; the Packers in the '60s with Bart Starr, UCLA with Kareem Abdul-Jabbar.

I know I usually heap praise like others squirt Tabasco sauce, but even I have to admit that Goldman is truly remarkable.

In fact, unbelievable! I'll say it again -- this company is not to be believed.

Consider this.

Goldman's profits rose an astounding 88 percent in the last quarter. Think of how many trash bags it would take to hold the $2.85 billion in profits that the firm earned on revenues of $12.33 billion.

Most brokerage companies didn't even earn enough money for the bags.

What makes this 88 percent pop in profits even more amazing is how poorly the rest of Wall Street did.

Lehman Brothers: earnings down 2 percent.

Morgan Stanley: down 8 percent.

Bear Stearns: whoa! down 62 percent.

Merrill Lynch: expected to be 10 percent lower and may be much worse.

In comparison with all those other miserable profit reports, Goldman Sachs' 88 percent improvement in earnings is a real eye opener -- and an eyebrow raiser.

Any company with such an outsized performance would automatically cause skepticism in any self-respecting journalist.

And that was exactly my first view of Goldman running away from the rest of the Wall Street pack.

But is the firm really Ruth, Starr and Abdul-Jabbar? Or was there a little Barry Bonds in there?

Maybe I'm a little more suspicious than skeptical and here is why.

Back on Aug. 21 Treasury Secretary Hank Paulson made one of his many appearances on the friendly confines of CNBC.

Paulson was the former chairman of Goldman Sachs -- the above-mentioned firm that often has extraordinary profits.

And here -- from the transcript -- is what Paulson told interviewer Steve Liesman about something the government calls the President's Working Group On Financial Markets. (I like the less-formal, more-to-the-point working title, the Plunge Protection Team.)

"Paulson: We've re-energized the President's Working Group on Financial Markets. I think it's my job to talk regularly to market participants, but also talk regularly to key regulators and make sure that we are seeing the same issues, the same problems, working toward the same solutions."

Liesman then changed the subject.

Whoa! Let's get back to the part about it being the job of the U.S. treasury secretary to "talk regularly to market participants."

Does that mean that Paulson regularly calls his old colleagues at Goldman Sachs and consults?

Does that mean it is "the job" of this high government official, with an incredible number of secrets, to phone up his friends at Goldman whenever he's concerned about the market's actions. Why call "market participants" if not about the market?

And what if, let's just say, something secret and profit-making happened to come out of those conversations?

Shouldn't Merrill and Bear Stearns and Morgan Stanley and Lehman Brothers and everyone else on Wall Street be conferenced in to those calls?

Shouldn't the U.S. Treasury secretary be required to announce whatever it is he told whomever during the regular talks he's having with market participants?

You notice from all the ????? in the previous sentences that this sort of behavior -- which has never before been admitted to by a Treasury Secretary -- raises some questions.

It has already been reported that Paulson has reenergized the Plunge Protection Team and that the group meets frequently.

One of them was this week when hedge fund managers were summoned to Washington and told -- politely I assume because of their campaign contributions -- that they need to clean up their act.

I'm sure adequate records will be kept of these conferences and press releases will continue to come out of Treasury on what was discussed.

But the conversations Paulson is having with "market participants" are also meetings.

And they should be documented not only because of the public's right to know but also to keep all the participants honest.

At the least, the Securities and Exchange Commission -- one of the last defenders of honest markets -- should get involved.

Barry Bonds may really be the home run champ, but his profits (ah, HRs) are so much better than everyone else's that you have to wonder.

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