Bought and Paid For

Table of Contents

 

 

 

SENTINEL
Published by the Penguin Group
Penguin Group (USA) Inc., 375 Hudson Street,
New York, New York 10014, U.S.A.
Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700,
Toronto, Ontario, Canada M4P 2Y3
(a division of Pearson Penguin Canada Inc.)
Penguin Books Ltd, 80 Strand, London WC2R 0RL, England
Penguin Ireland, 25 St. Stephen's Green, Dublin 2, Ireland
(a division of Penguin Books Ltd)
Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell,
Victoria 3124, Australia
(a division of Pearson Australia Group Pty Ltd)
Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park,
New Delhi - 110 017, India
Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632,
New Zealand (a division of Pearson New Zealand Ltd)
Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue,
Rosebank, Johannesburg 2196, South Africa

 

Penguin Books Ltd, Registered Offices:
80 Strand, London WC2R 0RL, England

 

First published in 2010 by Sentinel,
a member of Penguin Group (USA) Inc.

 

Copyright © Charles Gasparino, 2010

All rights reserved

 

LIBRARY OF CONGRESS CATALOGING IN PUBLICATION DATA
Gasparino, Charles.
Bought and paid for : the unholy alliance between Barack Obama and Wall Street / Charles Gasparino.
p. cm.
Includes bibliographical references and index.

eISBN : 978-1-101-44371-2

1. United States—Economic policy—2009- 2. United States-Politics and government—2009- 3. Business
and politics—United States. 4. Global Financial Crisis, 2008-2009. 5. Finance—Government policy—United
States. 6. Obama, Barack. I. Title.
HC106.84.G37 2010
330.973—dc22
2010026888

 

 

Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.

 

The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law. Please purchase only authorized electronic editions and do not participate in or encourage electronic piracy of copyrightable materials. Your support of the author's rights is appreciated.

To Austin Koenen:
A man of many talents, including not being afraid to speak his mind

N
ote:
The dollar amounts given here do not reflect amounts raised from friends and family, and so understate the true size of the contributions; sums shown are total amounts from January 1, 2007, to June 2010. Note that the limit for personal contributions to a Presidential campaign is $2,400 but by giving to national committees and political action committees (PACs) as well as other organizations, that amount can be vastly exceeded.

L
loyd Blankfein was exhausted. It was May of 2010, and the American public was furious at him for his role in the credit crisis currently plaguing the economy. After taking over Goldman Sachs as its CEO in 2006, Blankfein had transformed one of America's largest investment banks into a Darwinian trading enterprise—generating billions of dollars in trading profits with little regard for competitors or even its own clients—and shepherded it through the recession relatively unscathed. Yet despite his and Goldman's success, he had come to be viewed by many as nothing more than a greedy, deceitful, and manipulative traitor—out to make a buck no matter the consequences.

To make matters worse, the Securities and Exchange Commission (SEC) was threatening to charge the company with fraud involving its dealings in the lead-up to the financial crisis. Prior to the crisis, Goldman had made a fortune selling products known as “synthetic CDOs,” one of which was called Abacus. The SEC was alleging that Goldman had misrepresented Abacus to potential purchasers, telling them that ACA Management, an independent bond insurer, had reviewed the mortgages packed within the product, even though Goldman had failed to disclose to ACA (and to investors) that the hedge fund Paulson & Co., led by billionaire investor John Paulson, was trying to bet against (short sell) the product at the same time Goldman was encouraging clients to buy it.

Being hit with even a civil fraud charge (the SEC can't put people in jail) could be a serious blow to any firm, and Blankfein was well aware of the potentially severe consequences he was facing as well. If the charges held up, Goldman would be forced to admit it had committed fraud—an act that usually serves as the kiss of death for a bank when important pieces of business are on the line. Not only would future business be lost; according to people close to the firm, Blankfein could be forced to resign.

But despite his trials, Blankfein had taken time out of his grueling schedule to help a firm that wasn't a Goldman client, not even a prospective one. The firm was ShoreBank Corporation, a small community bank located in Chicago that lent money to inner-city businesses and was exploring the possibility of financing nascent and as-yet-unprofitable “green” businesses through so-called conservation loans and environmental banking, according to the bank's Web site. The bank's self-described mission was to “change the world.” And yet despite its seemingly good intentions, the bank's urban commercial borrowers were suffering greatly from the lower property values and high unemployment that stemmed from post- financial crisis recession. Without Blankfein's help (and the help of other major Wall Street firms) ShoreBank would follow the fate of dozens of other banks during the great recession and face almost certain collapse and government liquidation.

To be sure, helping out a struggling bank that wasn't even a client was a most un-Goldman-like thing to do. Goldman dealt with only the biggest companies in corporate America or with superwealthy individuals (typically, those with $10 million or more to invest with the firm). More than that, this was a firm that had a reputation for screwing just about any company, clients included, when business was on the line. Goldman, of course, would deny that assertion. Even so, in the normal course of business, a bank like ShoreBank, with its modest funds and do-gooder reputation, wouldn't even appear on Goldman's radar as a potential customer.

Yet for some seemingly inexplicable reason, Lloyd Blankfein—who had a net worth close to $500 million and until recently had never heard of ShoreBank—started imploring his friends at other firms, like Morgan Stanley, GE Capital, and others, to help this little bank. Not that Blankfein suggested there was money to be made here. Quite the contrary; it was simply the right thing to do.

To any casual observer, this puzzling scenario raises the question: Why would Blankfein possibly want to save ShoreBank?