The Government and Goldman Sachs: "Financial Reform" Is the Catch-Phrase of the Day, to Put the Brakes on Banking Entities' Risky Investments, but Government and Big Banks Are Intertwined

By Scaliger, Charles | The New American, July 19, 2010 | Go to article overview

The Government and Goldman Sachs: "Financial Reform" Is the Catch-Phrase of the Day, to Put the Brakes on Banking Entities' Risky Investments, but Government and Big Banks Are Intertwined


Scaliger, Charles, The New American


On Thursday, October 24, 1907, Wall Street was in turmoil. Crowds of spectators gathered to watch panicked bankers and their lackeys rushing about, desperately trying to halt the financial hemorrhaging of what would be known in the history books as the Panic of 1907. Outside one troubled bank, the Trust Company of America--where J. P. Morgan himself worked frantically behind the scenes to keep the institution solvent--long lines of angry depositors waited, hands jammed in pockets in the chill autumn air, to retrieve their deposited monies. No one knew whether the beleaguered bank, which Morgan had declared to be "the place to stop the trouble," would have enough funds to survive the run.

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No one paid attention to a poorly dressed 16-year-old boy standing in line with anxious depositors. He was small and slight of build, although his outsized coat concealed a back scarred by knife wounds from various street fights on the mean streets of Brooklyn. A stranger to the world of frock coats, silk hats, and high finance, young Sidney Weinberg had one thing in common with the men in suits milling about: he was on Wall Street to make money.

And make money he did, waiting in line for long stretches until he drew near to the bank doors, and then selling his place in line to some desperate depositor wanting to get to the cashier's window to retrieve his life savings. Weinberg charged five dollars for his place, and then went to the back of the line to start over.

For several days, while the contagion of panic ran its course, Weinberg stood in line in front of the Trust Company of America, selling places in line to the desperate while the titans of finance met behind closed doors to bring the crisis under control. In the end, J.P. Morgan and his associates tamed the panic, and Sidney Weinberg, flush with new cash, skipped school for an entire week.

The activities of a truant schoolboy may have had more impact on the financial history of the United States than the deal-making of the Morgans and Rockefellers during the panic. Weinberg was expelled from school for truancy the following month, and returned to Wall Street to look for a job. He found custodial work at the then-middle tier investment firm, Goldman Sachs, and spent the rest of his life on Wall Street. It was Weinberg who turned Goldman Sachs into one of America's most powerful investment banks and who, perhaps more importantly, used the resources of Goldman Sachs and his own considerable charisma to set up a collusive bond between Wall Street and Washington that persists to this day. The modern Goldman Sachs--one of the biggest players in the ongoing financial and economic turmoil--has become, thanks to the leadership of Weinberg and his successors, the very model of politically connected, taxpayer-guaranteed high finance.

Goldman Sachs Gets Going

Marcus Goldman, the founder of what would become Goldman Sachs in 1869, probably had no grand designs for a firm that got its start buying and selling commercial paper. Goldman, a European emigre who had come to the New World in 1848 to escape the chaos engendered by continent-wide revolutions in Europe, started his American career as a peddler in Philadelphia. After moving to New York, he brought a son-in-law, Samuel Sachs, into his firm, and Goldman Sachs & Co. was born.

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During the Gilded Age, Goldman Sachs grew into a respectable player on Wall Street, but was overshadowed by the likes of J. P. Morgan and Kuhn Loeb, which enjoyed a corner on the then-lucrative business of underwriting stock and bond issues for railroads. This forced Henry Goldman, son of Marcus, to seek more creative financing opportunities. It was Goldman who conceived the notion that not only capital assets but also earning power could be used as a basis for financing. While this allowed Goldman Sachs to become involved in a greater variety of corporate ventures, like mercantile companies--which typically had little in the way of capital assets to serve as collateral but strong potential earning power--it also made confidence and investor perception much more critical to deal making and overall market strength. …

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