Goldman CEO Blankfein Reboots as Bernanke Stays the Course

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Jason Reed/Reuters

Goldman Sachs Chairman and CEO Lloyd Blankfein testifies before the Senate Homeland Security and Governmental Affairs Investigations Subcommittee hearing on "Wall Street and the Financial Crisis: The Role of Investment Banks" on Capitol Hill in Washington April 27, 2010.

Goldman Sachs CEO Lloyd Blankfein has launched a complete image makeover, according to Fox Business Network. Appearing in shirt-sleeves Wednesday on CNBC and Bloomberg TV, Blankfein didn’t swear to do “God’s work” — as he has in the past — but he did promise better behavior toward Goldman’s clients, or “muppets,” as senior bankers allegedly called the firm’s customers. Fox Business Network correspondent Charles Gasparino described Blankfein’s new PR foray as “the biggest salvage job on Wall Street.” Full steam ahead.

Blankfein’s dutiful TV tour had all the markings of a PR “offensive”– they were his first appearances in well over a year — and came just hours after venerated public TV doc-shop Frontline kicked off its four-hour series on the financial crisis. (Watch the first segment here.) Produced by the stellar news-documentarian Martin Smith, the film drills down into the decisions and institutions that led up to the crisis. Most of the familiar players are presented, this time in even greater and more granular detail than in Andrew Ross Sorkin’s book and subsequent HBO film Too Big to Fail.

Sadly and sickeningly, we know the story by now. What makes Smith’s film effective is how it uses real-life experts and reporters to guide the viewer through the intricacies of credit-default-swaps and collateralized debt obligations. This is wonky stuff, but it’s well worth watching. As is by now familiar, Wall Street banks and others used mind-numbingly complex insurance products based on over-inflated housing prices to hedge against mortgage risk. Like creeping, time-delayed bombs, these products would ultimately blow up in Wall Street’s face and plunge the U.S. economy into the worst recession in 80 years.

I would not recommend eating lunch before viewing this film.

Like all journalists, Frontline‘s producers made choices. Banks, wonks, lawyers and reporters are featured. Unfortunately, the first half of the film completely neglects to mention the role of Fannie Mae and Freddie Mac, the government-sponsored enterprises that backed billions in toxic real estate loans, only to be fully taken over by the U.S. government. As far back as 2004, GSE balance sheets were heinous — carrying trillions worth of U.S. mortgages, but few noticed. Here’s what Smith told me:

We considered going down this path. But this is a vast landscape and we wanted to keep our focus on the major investment banks. Fannie and Freddie played a role in encouraging more borrowing, more home loans.

But without the banks being able to buy and package those loans, the market would not have heated up to the degree it did. Explaining CDS’s and CDO’s was challenging enough for this reporter and at least for our TV audience fresher territory.

(More: With ‘Muppet’ Hunt, Will Goldman Sachs End E-mail Smack Talk?)

Meanwhile, for a policy-maker who claims to advocate transparency, Fed Chairman Ben Bernanke’s Wednesday speech was a wonder of opacity and jargon. The central banker re-affirmed the government’s low-interest-rate policy but offered scant hope for a new round of economic stimulus. In fact, after 50 minutes of viewing his press conference, it was difficult to discern any broader message than — “We’re staying the course” — through the blizzard of econ-speak. As much as Bernanke might aspire to be transparent, the Fed remains maddeningly opaque. It’s taken years of reporting by the likes of Sorkin and Smith for everyday people to understand what went so horribly wrong during the financial meltdown.

  • “…highly accomodative policies…”
  • “…housing sector remains depressed….”
  • “…unemployment rate remains elevated…”

This is infuriatingly ambiguous language, not transparency. Opacity, not clarity. These words don’t convey any sense of the deep misery behind the front line story. Thankfully, the United States is emerging from the most devastating economic downturn in 80 years. The human impacts have been severe. What caused the crisis? A toxic mix of inflated housing prices, runaway Wall Street derivatives innovation, virtually non-existent government regulation, and shamefully negligent mismanagement at some of the most important financial firms in the country.

The names of the surviving, consolidated Wall Street banks are displayed in the film: Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo. These banking titans are now larger than they were before the crisis, having subsumed a field of smaller, erstwhile rivals. The carrion: one-time Wall Street stalwarts like Bear Stearns, Lehman Brothers, Washington Mutual, Wachovia, and the financial services group of AIG, which, at its peak, was the richest and most important insurance company in the world.

Now, nearly four years after the crash, the U.S. economy is not growing fast enough to sustain its already tepid job additions, according to Bernanke. The U.S. is at least two years away from restoring all the jobs that were lost during the recession. Hundreds of thousands of manufacturing jobs are not coming back. Everyone in business has had to re-evaluate their mission and purpose in the marketplace. Is it any wonder that this generation’s best and brightest minds have turned their sights to Silicon Valley, and the vapor-like illusion of the next Instagram, the next billion-dollar Facebook payoff?

Meanwhile, fifteen million Americans are out of work — and the unemployment rate is hovering at 8%, nearly double what’s considered healthy by economists. Try as Obama might, he cannot make the economy grow by sheer will alone. The United States is simply not growing fast enough. For Obama fans, this is a sobering realization. It presents the dawning possibility that the economy just might be bad enough to doom his re-election campaign.