Goldman Sachs Annual Report Defends Its Role in Credit Crisis

Lloyd Blankfein, Goldman Sachs CEO
Lloyd Blankfein, Goldman Sachs CEO

Goldman Sachs (GS) has decided not to take a low profile about its role in the credit crisis and the collapse of AIG (AIG). In its letter to shareholders in the investment bank's annual report, Goldman continued its public relations campaign asserting that its only role in the financial markets has been positive.

The press and the government have questioned Goldman's actions in the collapse of AIG. But in the letter Goldman says: "While our direct economic exposure to AIG was minimal, the financial markets, and, as a result, Goldman Sachs and every other financial institution and company, benefited from the continued viability of AIG." In other words, Goldman would never do anything to hurt the big insurance firm.

To make the case more forcefully, the investment bank's management wrote: "We are not 'betting against' them." A number of reports say Goldman insisted that AIG pay out 100% of the amount due from insurance on certain financial instruments that Goldman owned, which decreased in value during the financial crisis.

Accentuating the Positive

To deflect attention away from Wall Street matters, Goldman emphasized its charitable activities and its efforts to help small businesses. "Goldman Sachs announced in 2009 a new effort called 10,000 Small Businesses. This $500 million, five-year program aims to unlock the growth and job-creation potential of 10,000 businesses across the United States through greater access to business education, mentors and networks, and financial capital."

It added: "We also announced a $500 million philanthropic contribution to the firm's donor-advised fund, Goldman Sachs Gives, which was established in 2007. The firm's compensation for partners was reduced to fund this charitable contribution, reflecting the firm's tradition of philanthropy."

The letter went to great lengths to say that Goldman spent the year acting in the interests of its clients and that these actions were the driving force behind its business. That fails to address the huge sums of money that Goldman made in proprietary trading that did nothing to benefit clients, but enriched Goldman's shareholders and employees. The investment bank pressed the case that it paid workers only for their performances and nothing more.

The most recent cover story of BusinessWeek carries the headline "Goldman Sachs: Don't Blame Us." It's another attempt by the Goldman management to convince the media and the public that the firm is a do-gooder. It's a convenient position given that the government continues to probe Goldman's role in the AIG matter. Referring to the giant insurer's collapse, which caused the government to put $182 billion into it, the magazine wrote, "Heads Goldman wins, tails you lose, America." No amount of PR is going to kill that perception.