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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: The Vet who wrote (70204)	9/24/2006 11:46:23 AM
From: ldo79	Read Replies (1) \| Respond to of 110194

Might I add one additional? ============================ Goldman Sachs Has Gained Too Much Political Power: Matthew Lynn June 5 (Bloomberg) -- Forget ``The Da Vinci Code.'' If you want to get to grips with a real conspiracy, take a look at all the Goldman Sachs Group Inc. staffers taking over important economic positions around the world. The U.S. Treasury, the Bank of Italy and the Bank of England have all recently poached key policy makers from the world's most profitable securities firm. While no one would dispute that New York-based Goldman Sachs is a money-making machine full of alpha-brains, it isn't healthy for so many decision-makers to be drawn from one source. It is hard to ignore the trend for appointing Goldman employees to big government-appointed jobs. In the information technology business, they used say, ``No one ever got fired for buying IBM.'' In politics right now, the motto seems to be, ``No one ever got fired for hiring Goldman Sachs.'' U.S. President George W. Bush has just appointed Goldman Sachs Chief Executive Officer Henry Paulson as his new Treasury secretary, one of the most powerful economic jobs in the world. In January, Goldman Sachs Managing Director Mario Draghi became the new governor of the Bank of Italy. In Britain, David Walton, who was chief European economist for Goldman in London, last year joined the Bank of England's Monetary Policy Committee, which sets U.K. interest rates. In Canada, Mark Carney, formerly managing director in Goldman's Toronto office, is now a senior official in that country's Finance Ministry. It's not just economic jobs, either. Gavyn Davies went from Goldman to become chairman of the British Broadcasting Corp. for a few years. When someone was needed to run London's preparations for the 2012 Olympics, where did they turn? Goldman of course. Paul Deighton, a chief operating officer at the securities firm, was appointed in December. When politicians need a job filled, it seems they just shout at their secretaries: ``Get me the Goldman phone directory.'' Goldman Advisers The traffic goes in other directions as well. Among the firm's advisers are three former European Union commissioners: Mario Monti, Peter Sutherland and Karel van Miert. ``Goldman is plugged into the powers that be in the U.S.,'' said Patrick McGurn, executive vice president at the Rockville, Maryland-based Institutional Shareholder Services. ``There are going to be areas where the interests of the Treasury Department and the U.S. and Goldman intersect. On balance, it's got to be a plus for Goldman, especially outside the U.S.'' The polite word for that is ``network.'' The impolite word is ``cronyism.'' In many ways, the desire to hire Goldman people is completely understandable. In recent years, Goldman has proved itself a formidable organization. Its profits are strong. It constantly reinvents itself. It has talent in abundance. Plenty of former Goldman staffers have done well in government. Robert Rubin, the Treasury secretary to U.S. President Bill Clinton was probably the most spectacular example. Four Issues Still, there are four issues that are worth thinking about. First, it is starting to look like a bandwagon. Politicians will appoint a Goldman employee because they know the decision will get them great press. Some of the firm's success will rub off on them. Yet just as International Business Machines Corp. wasn't always the right choice for your technology department, Goldman isn't necessarily the best source of candidates for a government job. The risk is that better talent is overlooked. Next, Goldman Sachs managers are likely to have a world view dominated by trends in financial markets. In the last decade, that might well have been right. The economy was grappling with globalization and market liberalization. Yet the next 10 years may be a period in which asset- and commodity-price inflation are the main focus. That would require policy makers who weren't groomed on a trading floor -- and you won't find them at Goldman. Set of Preconceptions Third, the concentration of power is starting to look unhealthy. A clan of former senior Goldman staffers is now in a position to help steer the dollar, the euro and the pound. There needn't be anything sinister about that -- though financial conspiracy theorists could have a field day with some of the connections. The issue is that they are likely to have a uniform set of preconceptions and prejudices. In any area of endeavor, it is healthy to have a wide diversity of views. Global monetary policy is no exception. Lastly, there may be the potential for conflicts of interest. For example, policy makers might need to think whether oil speculation has to be brought under control. And Goldman is a participant in that trade. Would a former Goldman manager hammer one of his old firm's most profitable lines of business? And would they form an objective view on whether hedge and buyout funds are amassing too much influence? Maybe not. Damage to Reputation Goldman may not benefit from the recent appointments. Rubin presided over an era of exceptional economic strength, but Paulson won't be so lucky with the U.S.'s record budget and current-account deficits. Draghi will have to deal with an Italian economy still in a shambles, and Walton is helping set interest rates after the U.K. boom has passed. If the Goldman staffers mess up, the reputation of the firm they came from may be damaged. Politicians should call a moratorium. At the very least, the next time they have a big job to fill they could consider candidates from Morgan Stanley or UBS AG. Or perhaps someone who isn't an investment banker at all. bloomberg.com