What the squid did next
The power of Goldman Sachs did not come out of the blue. The Wall Street bank started building its European empire in 1986 – during Margaret Thatcher’s sweeping deregulation of the British financial sector – when it came to London and ingratiated itself with both major political parties.
From London, the tentacles of the squid moved across the Channel into continental Europe, slowly increasing the bank’s influence by lobbying in Brussels – where its chief lobbyists enjoy privileged access to both the European Commission and the European Parliament – and by playing a key role in a number of big financial lobby associations.
Illustration by Ed Hall
Alongside this standard lobbying, Goldman Sachs also developed a powerful network. And herein lies its power, according to Marc Roche, Le Monde’s London correspondent and author of a ground-breaking book about the bank.1
‘They’re simply the best at building political networks, and that has earned them the name “Government Sachs”,’ says Roche. ‘In Europe they stay clear of ex-politicians; instead they go for ex-European Commissioners and former central bankers. These work as door-openers. They help the bank to get access to those in power, and they show them how the EU works.’
At the end of last year, the strategy came up trumps. On I November 2011, the first of two ‘bankers’ coups’ took place when Mario Draghi, managing director and European vice-president of Goldman Sachs from 2002-05, took over as president of the European Central Bank.
Before his appointment could be approved, Draghi had to appear before a 35-strong committee of the European Parliament. Some concerns were expressed that Draghi was involved with European governments, particularly with Greece, where Goldman Sachs had developed a complicated financial instrument that concealed the extent of the country’s official debts, enabling it to join the Euro in 2001.
Draghi responded that the deals were ‘undertaken before my joining Goldman Sachs [and] I had nothing to do with’ them.
Marc Roche disagrees. ‘Goldman Sachs has never denied claims in the New York Times that Draghi promoted the same kind of deals with other southern European governments.’
A detail that was missing from Draghi’s CV was his membership of an exclusive international club of bankers. The Group of Thirty is a kind of lobby group with chief executives from some of the world’s biggest banks, including JP Morgan Chase, Morgan Stanley and Goldman Sachs. Their meetings are confidential.
When researchers from the campaign group Corporate Europe Observatory asked the ECB about this in light of its vaunted independence from political influence, they received the following brush-off: ‘It is part of the President’s tasks to represent the ECB in international conferences, fora and groups…’
In other words, Draghi can enjoy secret talks on financial regulation with Goldman Sachs.
Thank you, Greek crisis
The second bankers’ coup came a few weeks later. Following Silvio Berlusconi’s sudden departure from power, an international advisor from Goldman Sachs was selected as Italy’s new prime minister. Mario Monti, a former EU Commissioner, had worked for the bank since 2005. In 2010 he was appointed by the Commission to put forward proposals on how to deepen the Single Market – while still working for Goldman Sachs.
Monti had always pushed for further European economic integration with the free and deregulated market as the cornerstone. Shortly before he left the Commission, some of these proposals were defeated in the Council of Ministers. To his delight they re-emerged in response to the euro crisis. At a conference in Brussels in January 2011, he greeted the acceptance of his ideas for stronger enforcement of EU austerity policies with: ‘Thank you, Greek crisis’.
A few months later Monti was at the helm of Italy’s ‘technocratic government’.
The advantage to Goldman Sachs of having its former employees in the top government jobs is evident. It’s also advantageous to have its people in key advisory positions. The new technocrat Prime Minister of Greece, Lucas Papademos, knows about this. He was head of the Greek Central Bank when Goldman Sachs was helping his government mask its debts.
When Northern Rock was about to go bust, it was Goldman Sachs the British government turned to for advice. And when the euro crisis wiped out several Irish banks, including the Anglo Irish Bank, which owed billions to Goldman Sachs, who was called in to advise? Peter Sutherland, chair of Goldman Sachs International and first director-general of the World Trade Organization.
Take its role in the disastrous investment by European banks in the US real estate market. Goldman sold securities (bundles of loan certificates) based on mortgages to European banks, while simultaneously helping hedge fund manager John Paulson bet against the same securities. As a result, European banks like ABN AMRO, Royal Bank of Scotland and IKB Deutsche Industriebank lost more than a billion dollars. This has been likened to selling a bike with faulty brakes, and then selling bets that the brakes will fail.
Several top Goldman traders and executives were forced to appear before the US Congress. But the bank spared itself further embarrassment by choosing to settle with a $550 million fine – a sum swiftly recovered when news of the settlement made its shares leap in value.
This has been likened to selling a bike with faulty brakes, then selling bets that the brakes will fail
But such scandals have done nothing to halt the squid’s expansion into Europe. Nor has there been any show of remorse. Interviewed in 2009, chief executive Lloyd Blankfein explained he was doing ‘God’s work’. Indeed, when he goes to Europe to warn the EU against ‘excessive regulation’ he is received by press and European commissioners alike as though he were divine.
The need for a clear separation of public policies and private financial interests might seem self-evident. But governments and EU Commissioners still consider bankers and speculators as the wise, visionary and unavoidable sources for inspiration when designing the future economy.
What is to be done?
This provides the company with access to information, networks and influence that the person in question built up while working, supposedly, in the ‘public interest’.
The EU has been unable (or unwilling) to deal with revolving doors. In 2010 the European coalition for lobby transparency, ALTER-EU, counted six out of a total of thirteen commissioners who had just left and joined private companies. Of the six, five had joined the private financial sector.2
To combat this, ALTER-EU is campaigning for a ‘cooling-off period’ of three years when it should be impossible for an ex-Commissioner or ex-MEP to join a private company that can exploit experience and contacts obtained in public office.3
It’s a small step, perhaps, but one that might put a few obstacles in the way of the ambitions of ‘Government Sachs’.
- Marc Roche, La Banque: comment Goldman Sachs dirige le monde, Alblin Michel, 2010.
- The six are: Benita Ferrero-Waldner (Munich Re and Gamesa); Meglena Kuneva (BNP Paribas); Günter Verheugen (RBS; lobby consultancy Fleishman Hillard; European Experience Company; the Turkish Union of Chambers and Commodity Exchanges and a German banking lobby group); Charlie McCreevy (NBNK and Ryanair); Joe Borg (lobby consultancy FIPRA) and Louis Michel (Credimo).
- See alter-eu.org/revolving-doors