ΠΑΝΕΠΙΣΤΗΜΙΟ ΠΕΙΡΑΙΩΣ ΤΜΗΜΑ ΟΡΓΑΝΩΣΗΣ ΚΑΙ ΔΙΟΙΚΗΣΗΣ ΕΠΙΧΕΙΡΗΣΕΩΝ ΠΡΟΓΡΑΜΜΑ ΜΕΤΑΠΤΥΧΙΑΚΩΝ ΣΠΟΥΔΩΝ ΣΤΗ ΔΙΟΙΚΗΣΗ ΕΠΙΧΕΙΡΗΣΕΩΝ (MBA)

Business Week 2012, 7-11 Μαΐου 2012, Πειραιάς

Goldman Sachs, finance and the world: myths and reality

Marc RocheJournalist of “Le Monde”, Author

Speech

Good evening,

I have recently completed a documentary for television based on my book “La Banque”, focusing on Goldman Sachs. The biggest problem has been that, while those who agreed to take part knew little, those really “in the know” refused to contribute.

Added to which, no-one from any competitive bank would talk on camera. Likewise, politicians refused to be drawn onto my field of fire, nor did financial regulators. It was as if these professional people feared the consequences of what they might have to say.

While Goldman has been almost the pulse of the news during the last five years, when it is a matter of a film, there is a sense in which one is dealing with a clandestine institution outside the law. As with a mafia, penitents must be found. In fact, one speaks not of mafia but an old and venerable bank, instituted 140 years ago, listed on the market where its shareholders are the big pension funds, sovereign funds and small shareholders. The methods are entirely legal , albeit some ways could be described as unethical. The CEO is received as an equal by the Heads of State. So those people, who take part in this system, while not actually being of Goldman Sachs, fear to speak, fear to betray “l’omerta” - a code of silence- one that I definitely sensed.

In the United States, where there is a real financial culture and money culture, the role and the activities of Goldman Sachs are well-known and understood, therefore more open to scrutiny. Here in Europe, on the other hand,where the same culture does not exist, it is more difficult to fathom a player such as Goldman.

Another difficulty is avoiding a conspiracy theory as if there existed a James Bond type plot to take over the world. The criticism put forward last year here in Athens of the vernacular translation of my book, whereby the short sightedness, blindness even, of the politicians were somehow justified, seem to me to be an insult to reason. The arguments ran that if the Socialist government of Costas Simitis (1996-2004) abused the trust of the European partners in order to join the euro in 2001, it would not have done this knowingly but because of the tensions in the Eurostat, the statistics agency of the European Union. Or maybe it was the fault of the financier George Soros, a devil incarnate, spearheading a presupposed “jewish lobby” or was it a plot by the United States, allied with Turkey a sworn enemy of Germany, a Germany refusing to send back to Greece the gold allegedly taken during World War 2.

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The Internet is riddled with such nonsense.

Or, more likely is it not a question of a balance of power between a strong institution emerging even stronger from the crisis, and increasingly influential with governments weakened by that very same crisis?

But my critics are correct when they claim that the network of influence in Europe is spun by Goldman to work like a freemason’s lodge. To varying degrees, the President of the European Central Bank, Mario Draghi, the Italian Prime Minister, Mario Monti, and the outgoing Greek Prime Minister, Loukas Papademos, are totemic figures in this tight mesh.

The first was European Vice Chairman of Goldman Sachs International from 2002 to 2005. Hewas an associate, in charge of “private business and sovereign countries”, the department of the bank which was, shortly before his appointment, massaging the Greek figures with a “swap” in order to diminish the debt and stay into the euro. Draghi at Goldman was trying to sell the same product to other countries.

The second, Mario Monti, was an advisor to Goldman International from 2005 to his appointment as Head of the Italian Government. According to the bank his mission was to advise “on European affairs and major issues of global public policy” . Signor Monti was a “ door opener” tasked with getting to the pulse of European power and so to defend the interests of the bank.

The third player, Loukas Papademos, was governor of the Central Bank of Greece between 1994 and 2002. As such, he played an important role in the doctoring of the public accounts produced by Goldman. The Greek debt manager today, as it happens, is Petros Christodoulos, a former banker of the American bank at its London base.

Two other Goldman heavyweights were also networking during the euro crisis. Otmar Issing, ex- member of the management of the Bundesbank and former chief economist of the European Central Bank who opposed the Greek bail out by the EU. And from Ireland, Peter Sutherland, a manager at Goldman Sachs International who participated behind the scenes in rescuing Ireland.

So how was such a network of faithful fixers formed? In the United States a magic circle was made of old leaders of the institution elevated with bag and baggage to the highest level of public service. In Europe, on the other hand, Goldman is the apostle of “access capitalism” But unlike their competition, this bank has no interest in hiring retired ambassadors, nor distinguished national or international functionaries, even less former prime ministers or their finance department heads. Goldman’s eyes are focused primarily on central bankers or former European Commissioners.

The bank likes to seat its guys without ever dropping its mask.So this league of gentlemen hides its face when giving an interview or undertaking an official mission. Well received, these “Ex GS” speak about this and that with their interlocutors. Tongues can become loose before people of such calibre. They sense the way the wind is blowing. Exclusive knowledge is then shared in the trading saloons of the bank. The bank has at its disposal an amazing team in Frankfort, Rome and Athens that could prove helpful in these turbulent times. They help each other.

Let me tell you about an incident during our filming which was symptomatic of this. I asked Jean Claude Trichet, former President of the European Central Bank, the following question:

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“When choosing your successor at the ECB, was Mr Draghi’s former position at Goldman Sachs ever mentioned?” “Stop filming,” was his retort,” turn off the cameras”. “How dare you question me about Draghi?”

Such anger, ridiculous at the time, became understandable several weeks later when Trichet replaced Monti as chief of the Breughel Institute, one of the largest European think tanks. Such arrogance is all the more dangerous because all the pollings confirm this phenomenon at the very heart of the crisis: no-one really understands the financial mechanisms – sovereign debt, sub-prime, off-balance sheet accounting, government bonds, ratings, interest rates.

The public certainly lacks the necessary keys for decoding it all. Its inability nourishes a feeling of powerlessness and ever increasing anger. However, public opinion would like to understand. The bookshops are full of economic titles. While the newspapers endlessly chew over and analyse the “Crash”, the amount of broadcasting time given to the debacle is enormous. The blogosphere chimes in. But to no avail. The results of such a lack of understanding, nurtured by the financial world, are depressing and dangerous for democracy.

The first is a general denial of responsibility for the crisis. States,local governments, businesses or households do not wish to accept that they may have been living beyond their means during “the ten glorious years”, that period of unprecedented prosperity which lasted from the late 1990s through to the cataclysm of 2007.

As regards the financiers themselves, even in cases of proven fraud within subprime, no one was arrested, tried or sentenced. Little surprising that the bankers who have learned nothing from the crisis, have resumed their old habits: generous bonuses, inflated egos, torpedo against any regulatory moves or going off-shore.

Furthermore, the irrational has outpaced the rational in this world of great confusion where feelings, often very raw, overcome objective reality. Let us take our political leaders. Faced with a crisis over which they have no hold, overwhelmed by the challenge, governments are more reactive than proactive. They argue their summary explanations and borrow replies from the demagogues. The simplest option for them is to make big business more accountable for all the trouble without actually doing anything about those mechanisms in place.

On account of this, the banking lobby has bought former politicians to advance their interests. JPMorgan? Tony Blair. Lazard? Peter Mandelson. Dexia? The Belgium former prime minister Jean Luc de Haene. Gazprom? Schröder, and so on, unending.... In France, this was never the case, one hears. Oh no, Look at the numerous former public functionaries who hold bank directorships. To complicate matters, it was the Left which in theory is anathema to the world of business and not the Right that deregulated the banking system. Such names as Clinton, Schroder, Prodi, Gordon Brown, Dominique Strauss Kahn enabled this.

And what of the press?

Nick Dunbar is a name that may mean nothing to you. He is a colleague of mine who, to my mind, is “the unsung hero” of the Greek shambles. Such an individual came into journalism as if into a religion, as an austere Benedictine might have. In 2003 when writing for the monthly magazine RISK, he revealed the extent of the role played by Goldman Sachs in the “making-up” of the Greek public accounts two years previously.

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The Greek authorities and Goldman had killed off the case by insisting with considerable aplomb that they had acted solely to manage the debt. A simple operation with no consequence…Careful not to get onto Goldman’s back, The Financial Times, the preferred daily of the City of London, passed the matter over in silence, so did the BBC.

Seven years later, the German weekly Die Spiegel took up the story running with it without giving Dunbar any credit for it. The Greek matter finally saw the light of day.

The press is often muzzled by those proprietors close to the financial world. But there are direct responsibilities: the blind defence of liberal capitalism, the stars of the monied world placed on pedestals like the classical gods of old. Finally, access to any information is curtailed because of the numbers of “spin doctors”.

A further result of the pervading confusion is that the defenders of the banking system have decided to stay silent on their subject. Most likely through fear of revealing themselves, more than from any rational reasoning.. There are but few penitents expressing credible regret. The real masters of money are conspicuously absent and, by being so, reinforce the negative image of the financial world, almost to a cartoon-like presence.

So who takes the place,of those absent hidden money people? The Occupy Wall Street, the Anticapitalists or the Populists of every hue, as demonstrated by a breakthrough of the Extreme Right in the Netherlands, Sweden, France, and Greece. Their protests are expressed in speeches pointing at the unjust and obvious effects: more poor people, more rich bankers. But then, laying the blame on the immigrants.

Yet slogans ignore the key role of the banking system in the financing of growth. We need finance like bread, but well regulated and ethical.

On the whole their language is a mixture of arrogance, technical jargon and self happiness. We are the best, you don't understand anything, We are after all the Masters of the Universe All the rest is sheer envy No remorse, no humility

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