By Kevin Bogardus and Silla Brush - 04/22/10 10:00 AM EDT
Having invested $18 million over the last decade lobbying members of Congress and millions more contributing to lawmakers’ campaigns, Goldman Sachs is uniquely positioned to fight the fraud charges the government has filed against it.
On Wall Street, the firm is the perennial kingpin, with both the biggest name and, often, the biggest profits. In Washington, Goldman is just as influential, with a robust lobbying presence, access by its executives to private White House meetings and a long list of politically connected alumni who have maneuvered through the revolving door between government and finance.
“There is no better return on the investment,” said William Black, professor of law and economics at the University of Missouri-Kansas City. “No one does it remotely, remotely as well as Goldman does. It has paid dividends for them in this crisis. So, smart business.”
Added Douglas Elliott, fellow at the Brookings Institution and former banker at JPMorgan Chase: “When you hear phrases like ‘Government Sachs,’ that is not good for them. But on the other hand, those relationships in Washington can pay off.”
The government’s fraud case does pose the clearest test yet to the 141-year-old bank’s storied political power, reputation and savvy. To succeed, the firm will have to do two things seemingly very much at odds: vigorously fight the charges, which it calls “completely unfounded in law and effect,” and continue to cozy up to Washington’s power players.
A Goldman Sachs spokeswoman declined to comment on the firm’s lobbying activities and campaign contributions. But the bank is no doubt well-aware both of the hostile climate in which it’s operating in Washington and the urgency of the need to change that.
Goldman Sachs’s most recent annual statement noted that regulators have gotten tougher in recent years and have sometimes taken action “to advance or support legislation targeted at the financial-services industry.”
“Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations,” the filing says.
Observers say because of the government’s increased role in Wall Street business, it’s necessary that Goldman Sachs have a powerful Washington presence.
“It makes sense to have that strong focus,” said Elliott of Goldman’s lobbying efforts. “We are about to pass the most sweeping financial reform legislation since the Great Depression. That is going to affect a lot of their business.”
To defend against the SEC charges, Goldman has the most high-profile former Obama administration official in its employ. Greg Craig, who served as White House counsel during President Barack Obama’s first year in office, is working with the bank as part of its legal team at Goldman’s longtime law firm, Skadden, Arps, Slate, Meagher & Flom.
The White House expressed some concern when asked Tuesday if it was surprised by Craig’s client.
“Well, in the sense that we weren’t consulted about the particular position, but that’s not something that we would have a heads-up on, necessarily,” said Bill Burton, White House spokesman.
Craig is part of a sprawling Washington network with ties to Goldman.
Treasury Secretary Timothy Geithner’s chief of staff, Mark Patterson, is a former Goldman lobbyist. Ex-Goldman employee Gary Gensler is chairman of the Commodity Futures Trading Commission (CFTC), which will gain new power over the multitrillion-dollar derivatives market. Diana Farrell, deputy director of the White House’s National Economic Council, once worked at Goldman. Former Goldman head Henry Paulson served as Treasury secretary under the George W. Bush administration.
Goldman senior executives and lobbyists have had regular access to Obama’s White House, visiting at least 10 times so far, according to administration records. Some of the visits were for widely attended events — such as the Kennedy Center Honors reception back in November 2009 — but others were more intimate.
Goldman CEO and chairman Lloyd Blankfein had two private meetings last year with senior White House economic adviser Larry Summers. Gary Cohn, Goldman’s president and COO, attended a small meeting with White House Chief of Staff Rahm Emanuel a year ago.
Goldman has been generous with money — though not without self-interest. Perhaps not surprisingly, one of the biggest recipients of the firm’s campaign cash has been Obama. In the 2008 campaign, the then-Illinois senator received close to $1 million from Goldman’s political action committees (PACs) and employees, making him the bank’s largest recipient in the election cycle, according to the Center for Responsive Politics.
“Goldman is impressive with their access and impact at all levels. Whether in Congress, White House or Treasury, you can clearly see their fingerprints everywhere,” said a financial-services lobbyist.
Those fingerprints haven’t been lost on some members of Congress. At a January congressional hearing on the bailout of American International Group (AIG), Rep. Marcy Kaptur (D-Ohio) had a tense exchange with Geithner. Kaptur wanted him to explicitly say where Paulson and Patterson worked — as if Goldman were a dirty word — and explain why Goldman got billions of taxpayer dollars through the AIG bailout because of earlier deals the insurer struck with the bank.
On the more traditional lobbying front, Goldman has spent about $18 million since 1999, according to disclosure records. By the end of 2009, some 41 lobbyists and 13 outside firms were registered to work for Goldman.
The lobbying roster includes some of the biggest names on K Street. Former House Democratic Leader Richard Gephardt (Mo.), ex-Rep. Harold Ford Sr. (D-Tenn.) and Steve Elmendorf, once a Gephardt aide and Kerry ’ 04 deputy campaign manager, stand out among Goldman’s Democratic contract lobbyists. Kenneth Duberstein, a Reagan White House chief of staff, and Eric Ueland, former Senate Majority Leader Bill Frist’s (R-Tenn.) chief of staff, are among the Republicans hired by Goldman.
Lobbyists say Goldman’s reputation and bevy of bold-faced names help it get its way in the capital.
“Perception becomes reality in Washington,” said another financial lobbyist. “People perceive Goldman to be able to do anything, and that makes their job easier at times.”
Goldman has not skimped on political giving to congressional lawmakers, having a large PAC with more than $900,000 in cash on hand at the end of March. So far, its PAC has donated more than $100,000 to federal candidates during the 2010 election cycle and contributed almost $1.1 million to candidates since the 2000 campaign, according to CQMoneyLine.com.
The PAC’s giving has favored Democrats as well, with more than 58 percent of its campaign contributions going to that party’s candidates this cycle. It also has made $15,000 donations to the Democratic Senatorial Campaign Committee, the Democratic Congressional Campaign Committee and the National Republican Senatorial Committee.