Tuesday, December 1, 2009

Bethany McLean on Goldman Sachs: "The Bank Job" (GS)

We've been fans of Bethany* since the Enron days. From Vanity Fair:
One of the biggest disconnects on Wall Street today is between the way Goldman Sachs sees itself (they’re the smartest) and the way everyone else sees Goldman (they’re the smartest, greediest, and most dangerous). Questioning C.E.O. Lloyd Blankfein, C.O.O. Gary Cohn, and C.F.O. David Viniar, among others, the author explores how their firm navigated the collapse of September 2008, why it has already set aside $16.7 billion for compensation this year, and which lines it’s accused of crossing.

Lloyd Blankfein—who was born poor in the South Bronx, put himself through Harvard, and became the C.E.O. of Goldman Sachs in 2006, after 24 years at the firm—is a history buff, a lawyer, a wordsmith, and something of an armchair philosopher. On a Thursday in October—the very day when the firm announced it had made $8.4 billion in profits so far this year—he speculates whether Goldman would have survived the financial conflagration in the fall of 2008 entirely on its own, without any kind of help, implicit or explicit, from the government. “I thought we would, but it was a hell of a higher risk than I was happy with,” he says, sitting in his 30th-floor office in Goldman’s old headquarters, at 85 Broad Street, in Lower Manhattan. “As a result of actions taken [by the government], we were better off than we otherwise would have been. Was it dispositive? I don’t know. I don’t think so … but I don’t know.”

He adds, “If you ask, in my heart of hearts, do I think we would have failed … ” He pauses, then pulls out his trump card: at the height of the crisis, Warren Buffett agreed to invest $5 billion in Goldman Sachs.

Buffett, the venerated Nebraska investor, is famously reluctant to put money into Wall Street firms. But he has a long history with Goldman. As a 10-year-old he went to New York with his father, a broker in Omaha, and they stopped by Goldman Sachs to visit Sidney Weinberg. As Goldman’s leader from 1930 to 1969, Weinberg helped build the firm into the powerhouse it became. “For 45 minutes, Weinberg talked to me as if I were a grown-up,” Buffett likes to recall. “And on the way out he asked me, ‘What stock do you like, Warren?’” In later years Buffett liked to cite Byron Trott, who until recently worked in Goldman’s Chicago office, as one of the few investment bankers worth his salt....MORE

HT: MarketBeat who write:

Buffett’s Hardball with Goldman: Hitting Dairy Queen

We all know how Warren Buffett swooped into Goldman Sachs at the peak of the financial crisis in fall of 2008, sinking $5 billion into the gold-plated investment bank and picking up the rights to buy Goldman shares at $115 apiece.

But in Bethany McLean’s exhaustive look at Goldman in the January 2010 Vanity Fair, we get a bit more detail on how the deal was roughed out by then Goldman investment banker to Buffett, Byron Trott, and finalized in a call with with Goldman big shots:

In a very brief—and very Buffett—call that afternoon with Blankfein, Trott, and then co-president Jon Winkelried, Buffett said he would invest $5 billion in exchange for a hefty 10 percent dividend and rights to buy additional stock over the next five years at a price of $115 a share. “I’m taking my grandkids out to Dairy Queen,” he told the Goldman men. “Call me and let me know what you want to do.”

Of course, they accepted....MORE
*Nov. 14, 2007 (a month after the market hit it's all-time high)
Wall Street Learned the Lessons of Enron (Unfortunately)

By now, Climateer Investing's loyal and long-suffering readers know of my morbid fascination with stock frauds in general, and Enron in particular. One of the earliest* looks at this perversion of capitalism and markets was:

Is Enron Overpriced?

It's in a bunch of complex businesses.
Its financial statements are nearly impenetrable.
So why is Enron trading at such a huge multiple?

By Bethany McLean

March 5, 2001

NEW YORK (FORTUNE) -- In Hollywood parlance, the "It Girl" is someone who commands the spotlight at any given moment -- you know, like Jennifer Lopez or Kate Hudson. Wall Street is a far less glitzy place, but there's still such a thing as an "It Stock." Right now, that title belongs to Enron, the Houston energy giant. While tech stocks were bombing at the box office last year, fans couldn't get enough of Enron, whose shares returned 89%. By almost every measure, the company turned in a virtuoso performance: Earnings increased 25%, and revenues more than doubled, to over $100 billion. Not surprisingly, the critics are gushing. "Enron has built unique and, in our view, extraordinary franchises in several business units in very large markets," says Goldman Sachs analyst David Fleischer....MORE
Now Bethany is back with
Uh-oh. It's Enron all over again

(Fortune Magazine) -- Start with the headlines about off-balance-sheet entities known as structured investment vehicles, or SIVs (or sieves, as some wags are calling them). As Gertrude Stein never said, an off-balance-sheet vehicle is an off-balance-sheet vehicle is an off-balance-sheet vehicle....

The man who lost $6 billion (Brian Hunter, Amaranth)

We've been fans of Bethany Maclean since her work on Enron in 2001. We've got a link to that ENE piece and her look at sub-prime in "Wall Street Learned the Lessons of Enron (Unfortunately)".
Now she writes about another of our favorite stories.* From Fortune:

Brian Hunter brought down Amaranth with disastrous trades on gas. He is accused of manipulating the markets. He has been called the 'destroyer of all worlds.' But is he such a bad guy?

There's a certain allure to the archetype of the rogue trader....