The Real Scandal at Goldman Sachs: The Stock Price

Daniel Gross, On Thursday June 16, 2011, 7:43 am EDT

What's the biggest scandal surrounding Goldman Sachs (GS), the bank everybody loves to hate? Take your pick. There's last year's $550 million settlement with the Securities and Exchange Commission over its role in constructing securities related to subprime bonds. Or the fact that a big chunk of the taxpayer cash used to bail out insurer AIG went into Goldman's sacks. Or the $10 million fine it received from Massachusetts this week over its practice of holding "trading huddles" with selected clients. Or the continuing debate over whether Goldman executives testified accurately to Congress when they discussed the firm's subprime trading position. Ooh, ooh, I know. How about its dealings with Libya's sovereign wealth fund, which are now being investigated by federal authorities? Others, like Matt Taibbi of Rolling Stone, say it is the firm's general vampire-squid nature.

Here's the real scandal: the performance of Goldman's stock during the tenure of CEO Lloyd Blankfein.

Blankfein came up through Goldman's trading ranks, and his ascension represented a triumph of the sharp-edged traders over the more genteel investment bankers who usually shared custody of the firm. (The battle for the soul of Goldman between these two branches is a theme of big narrative histories like Charles Ellis's The Partnership: The Making of Goldman Sachs and William Cohan's Money and Power: How Goldman Came to Rule the World .) And under Blankfein, Goldman seems repeatedly to have run into trouble by continually searching for an edge, regardless of the consequences. Goldman in recent years has operated more like a cut-throat hedge fund than a white-shoe investment bank — except without the results.

Lets look at the tape. Blankfein was named as the successor to Henry Paulson on June 2, 2006, pending Paulson's confirmation, which came on June 28, 2006. He's run the firm as CEO for almost five years.

Now look at this five-year chart of Goldman's stock. It closed on June 28, 2006, at $146.49, and today it trades at about $135. The stock is down 7.8 percent under his reign. Goldman's stock has paid a dividend of about $1.40 per share for the past several years. So, adjusted for dividends, according to Yahoo! Finance, the total return under Blankfein has been -3.5 percent. Investors would have done much better leaving their money in a bank and collecting minuscule interest payments.

We'll concede that it has been a rough several years for the financial services industry and for the market as a whole. Here's a five-year chart comparing Goldman to the S&P 500 and to the KBW Bank Index. Over the past five years, Goldman has outperformed the sad sack bank index by a significant margin but has underperformed the S&P 500. Goldman survived the 2008 panic in better shape than most of its rivals, in part because the Federal Reserve let it and other highly leveraged investment banks access funds. But Goldman didn't exactly light it up as the credit and stock markets bounced back. (Here's a two-year chart of Goldman against the S&P 500 and the KBW Bank Index.)

Besides, Goldman would be insulted if it were to be compared to the typical member of the KBW Bank Index. This isn't some small-time, sleepy institution that takes deposits and lends money here and there. Goldman is an elite global institution, with the best minds and systems money can buy. It bestrides the globe like a colossus. It works harder and smarter than all the other firms. It has a culture in which failure and mediocrity aren't tolerated, much less rewarded. Up or out.

So imagine a bunch of senior Goldman executives hired an expensive portfolio manager and tasked him with creating positive returns. Next, imagine that the manager came back year after year and informed the executives that the best he could do was flat returns — but that he nonetheless deserved a multimillion-dollar payday. They'd laugh.

And yet while Goldman's returns have been subpar, CEO Lloyd Blankfein is getting paid like he's crushing the market. As the Financial Times reported this week, Blankfein "was paid $14m in 2010, more than 15 times his 2009 earnings, as senior bankers collectively shed their hair shirts." That' s just one year's compensation.

This highlights the real problem with Goldman Sachs. Like other investment banks, it isn't run for the benefit of its clients, or for the benefit of public shareholders, despite what its business principles say (#3: "Our goal is to provide superior returns to our shareholders.") No, Goldman and other publicly traded Wall Street firms are really ingenious machines for spinning revenues into compensation for insiders. If that means other stakeholders do poorly while executives make out great, that's just the way it goes.

This is really nothing new. In 1940 Fred Schwed, Jr., published the classic book on how brokers prosper while investors suffer. It was entitled Where Are the Customers' Yachts? Goldman Sachs stockholders might rightly ask Where Are the Shareholders' Yachts? The returns provided to them under Lloyd Blankfein in the past five years aren't enough to buy a ride on the Staten Island ferry.

Opinion & Editorials :: 1133 Views

NEWSLETTER SIGN-UP

Our newsletter is released only to notify you about the exclusive stories on the site, exclusive leads on investigations and alerts on projects like video documentaries released by New World Order Report

Email Address:

RADIO ARCHIVE

Click here to read Jonathan Elinoff's bio

Latest radio interviews:

4/29/2012 11AM - Jonathan Elinoff joins Craig Silvermann on the Ross Kaminsky Show on Denver's 850KOA to discuss the Pat Sullivan story, confession and newly released information

4/27/2012 6AM - Jonathan Elinoff a freelance videographer and investigator who broke the Pat Sullivan meth for sex story is in studio with Peter and Julie Hayden investigative journalist for Fox 31 joins Peter and Jonathan to discuss the ugly Pat Sullivan story. Is Pat Sullivan a smaller piece in a larger puzzle of deviant sexual corruption?

4/27/2012 7AM - The show continues to heat up this hour; Bryan Maass of CBS 4 News joins the show to provide his take on the Pat Sullivan interrogation tape. What did Pat Sullivan admit to and what accusations could be corroborated. Why did the District Attorneys decide to proceed with a plea deal instead of a trial? Julie Hayden, Jonathan Elinoff, Bryan Maass and Peter Boyles discuss what is true, what is just and did Pat receive a sweetheart deal, there is contention and disagreement about the Sullivan interrogation tape and the four engage in great discourse and discussion.

4/27/2012 8AM - Peter opens up the show to calls this hour and the lines light up with many listeners weighing in on the Pat Sullivan story. This hour has many voices, views and opinions and discussion between Peter, Jonathan and callers. What do you think about the sentencing that former Arapahoe County Sherriff Pat Sullivan received for his sex for meth scandal?

4/6/2012 6AM - Peter Boyles Show - Jonathan Elinoff the investigative reporter who was instrumental in breaking the Pat Sullivan meth for sex scandal joins Peter for the full hour to discuss his investigation into the dark world of drugs and male prostitution. Jonathan and Peter delve into the egregious story of sex, drugs, coercion, abuse of power and possible murder.

4/6/2012 8AM - Investigative reporter for Fox 31 Julie Hayden joins the show and John Elinoff returns to discuss the Pat Sullivan story and the possibility of a connection between Eric Harris and Dylan Klebold of the Columbine massacre. The Sullivan Story is sure to continue and seems to get stranger and more deviant.

4/6/2012 9AM - Tom Martino addresses a caller about the alleged sex trafficking that was observed in the Sullivan investigation at the start of the show...

4/4/2012 8AM - Peter Boyles Radio Show Interviews Jonathan Elinoff and Tom Martino about Pat Sullivan Meth for Sex Scandal

4/4/2012 9AM - Tom Martino continues the Peter Boyles Interview with Jonathan Elinoff and Tom Martino about Pat Sullivan Meth for Sex Scandal

4/4/2012 3PM - Caplis and Silverman Radio Show Interviews Jonathan Elinoff about the Pat Sullivan Meth for Sex Scandal

2/2/2012 3PM - Jonathan Elinoff interviewed on KGNU in Boulder and Denver Colorado about his investigation into former Sheriff Pat Sullivan in the "Meth for Sex" scandal, with host Shareef Aleem

12/16/2011 8AM - Peter Boyles Radio Show Interviews Jonathan Elinoff and Tom Martino with release of info

12/16/2011 7AM - Peter Boyles Radio Show Interviews Jonathan Elinoff and Tom Martino with release of info

12/2/2011 9AM - Tom Martino & The Troubleshooter Network Radio Show Interviews Jonathan Elinoff with release of info

12/1/2011 3PM - Caplis and Silverman Radio Show Interviews with release of info

12/1/2011 10AM - Tom Martino & The Troubleshooter Network Radio Show Interviews Jonathan Elinoff with release of info

12/1/2011 9AM - Tom Martino & The Troubleshooter Network Radio Show Interviews Jonathan Elinoff with release of info

12/1/2011 - 8AM - Peter Boyles Radio Show Interviews Jonathan Elinoff with release of info

11/30/2011 5PM - Caplis and Silverman Radio Show Interviews with release of info

11/30/2011 4PM - Caplis and Silverman Radio Show Interviews with release of info

11/30/2011 11AM - Tom Martino & The Troubleshooter Network Radio Show Interviews Jonathan Elinoff with release of info

11/30/2011 10AM - Tom Martino & The Troubleshooter Network Radio Show Interviews Jonathan Elinoff with release of info

11/30/2011 9AM - Tom Martino & The Troubleshooter Network Radio Show Interviews Jonathan Elinoff with release of info

11/30/2011 8AM - Peter Boyles Radio Show Interviews Jonathan Elinoff with release of info

11/30/2011 - Truth Jihad Radio with Kevin Barrett interviews Jonathan Elinoff on the following up with the now breaking story of Pat Sullivan and the scandal related to it

11/16/2011 - Truth Jihad Radio with Kevin Barrett interviews Jonathan Elinoff on the first breaking story of Pat Sullivan and the scandal related to it

9/22/2011 - Tom Martino Show with Special Guest Jonathan Elinoff: Discussion about underground facility at D.I.A.

9/8/2011 - Tom Martino Show with Special Guest Jonathan Elinoff: Tom Martino wakes up to 9/11

9/8/2011 - Peter Boyles Show with Special Guest Jonathan Elinoff: Discussion about the Core of Corruption sequels as well as 9/11 in general and Elinoff's research on it

1/27/2011 - WKRP with Host Rob McNealy with Guest Jonathan Elinoff, Editor of New World Order Report. Click here for the show information and bio Click here for the 1/27/2011 Show

To listen to any other radio interviews or archived radio shows, check our Archives section or click here.

SUPPORT US

&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;br&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;

New World Order Report is proud to offer our award winning documentary, Core of Corruption: In the Shadows. Click the ad below to order the DVD

Watch Core Of Corruption: In the Shadows for FREE Below: