After Goldman Sachs' (NYSE:GS) earnings announcement this week, one thing is clear: this company makes a lot of money - $3.44 billion in the second quarter to be exact. And the company is also displaying its largess by gearing up to pay out some of the largest executive bonuses in its history. But this dispensation of cash may be well deserved. After all, a key driving force behind the U.S. banking giant's success is simple - it employs some very smart people. But Goldman people aren't just smart - they're influential, too, and they have the ear of some key people in government because many of these people are Goldman Sachs' alumni themselves.
This may provide Goldman with what could be viewed as a unique competitive advantage in an industry where profits significantly depend on policies and regulations created by government. So let's take a look at a few notable Goldman Sachs alumni who have graduated from the financial services firm to hold key public service jobs.
- Stephen Friedman:
Years at Goldman Sachs: 28
Government Positions Held:
-Chairman of the Board of the Federal Reserve Bank of New York
-Chief Economic Adviser to President George W. Bush
Stephen Friedman joined Goldman Sachs in 1966, rising through the ranks, like many of the people on this list, to become co-chief operating officer in 1987 and chairman of Goldman in 1990. In 2008, Friedman became the chairman of the New York Fed, working closely with the current Treasury Secretary Timothy Geithner.
Of particular interest was the period during the 2008 financial crisis in which Goldman Sachs received $10 billion in TARP funds and an exceptionally fast approval to convert to a bank holding company. At that time, Friedman was the chairman of the New York Fed and sat on the board of Goldman Sachs. In addition, Friedman held a large amount of Goldman stock at the time, which was a violation of Fed Reserve rules. Although he sought a waiver for the rule, Friedman resigned as Fed chairman in 2009. (Learn more about 2008 crisis in our article The Financial Crisis In Review.)
Henry "Hank" Paulson:Years at Goldman Sachs: 30 Government Position Held: -74th United States Secretary of the TreasuryAfter joining Goldman in 1974, Henry Paulson spent three decades moving up the ranks, eventually reaching the top seat as chief executive in 1998, replacing Jon Corzine. In 2006, Paulson was nominated by George W. Bush to become the 74th United States secretary of Treasury. During his time in office, Paulson proposed a $700 billion stimulus package to prop up financial firms struggling to survive. Victims of the crisis included Bear Stearns, Lehman Brothers and Merrill Lynch - three major competitors to Goldman Sachs. Morgan Stanley (NYSE:MS) and Goldman Sachs were the two remaining investment banks (now bank holding companies) to survive. (Form ore on these bank collapses, see Dissecting The Bear Stearns Hedge Fund Collapse and Case Study: The Collapse Of Lehman Brothers.) John Whitehead: Years at Goldman Sachs: 38Government Positions Held: -United States Deputy Secretary of State -Chairman of the Board Federal Reserve Bank of New YorkDuring his lengthy time at Goldman Sachs, which began in 1976, John Whitehead steadily moved up the corporate ladder to become a senior partner and co-chairman of the company. After leaving Goldman, he served as deputy secretary of state under George Shultz in Ronald Reagan's administration and was a also a chairman for the Federal Reserve Bank of New York.William C. DudleyYears at Goldman Sachs: 21 Government Position Held: -President of the New York FedWilliam Dudley succeeded Timothy Geithner for the top job at the New York Fed in 2009. His appointment came under slightly unusual circumstances. Timothy Geithner had played an active role in promoting and lobbying for Dudley to become the next president of the New York Fed while he was a nominee to become the Treasury secretary. This added a politicized aura to Dudley's selection. In addition, Stephen Friedman, the former New York Fed chairman and Goldman executive, helped oversee and choose this Goldman Sachs alumni for the position.Robert RubinYears at Goldman Sachs: 26 Government Position Held: -70th United States Secretary of the TreasuryRobert Rubin was nominated as the 70th secretary of Treasury in 1995. During his tenure, Rubin was a strong opponent against regulating the derivatives markets, arguing that regulation would cause chaos in the financial system. In hindsight, the derivative markets were one of the key drivers cited for the financial meltdown in 2008-2009. (To learn more, read Are Derivatives Financial "Weapons Of Mass Destruction?)Jon CorzineYears Working for Goldman Sachs: 23 Government Position Held: -U.S. Senator -Governor of New JerseyJon Corzine was a former chief executive and chairman at Goldman Sachs. Corzine appears to be one of the few CEOs at Goldman that promoted volunteerism and community involvement among his employees. He was also at the helm when the company decided to convert Goldman Sachs to a public company.In his role as a senator, Corzine help structure the Sarbanes-Oxley Act and worked on the Committee on Banking, Intelligence, Budget, and Energy and Natural Resources. Also, Corzine was also one of 23 senators who voted against the war in Iraq.Josh BoltenYears at Goldman Sachs: 5Government Position Held: -22nd White House Chief of StaffAs White House chief of staff under George W. Bush, some of Bolten's key duties included selecting key white house staff, managing the flow of information and negotiating with Congress on behalf of the president. Bolten also assisted in the selection of Henry Paulson, the former CEO of Goldman, as Treasury secretary.
This is merely a short list of some of Goldman alumni who hold or have held prominent positions in government. Other influential former Goldman alumni include Robert Steel, Reuben Jeffrey, John Thornton, Neel Kashkari and Randall Fort. The number of Goldman Sachs executives who've left Wall Street to pursue careers in public service is an unusual history for a financial services firm, but then again, a company that racks up its largest-ever profit as a public company less than a year after it receives $10 billion in TARP funds from the government is one unusual company indeed.