-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- from: http://msnhomepages.talkcity.com/ReportersAlley/thecatbirdseat/Catbird3.htm Click Here: <A HREF="http://msnhomepages.talkcity.com/ReportersAlley/thecatbirdseat/Catbird3. htm">THE CATBIRD SEAT</A> ----- Crossroads Group - Sometime in 1996, Bishop Estate loaned approximately $1 million to Charles Harmon, Jr., an investment banker and former general partner of Goldman, Sachs & Co. The August 12, 1996 issue of Pacific Business News reported that Bishop Estate had "quietly purchased the majority interest of a Connecticut specialized advisory business that manages almost $1 billion in assets. . . . Royal Hawaiian Shopping Center, Inc., a for-profit subsidiary of Bishop Estate, is a co-investor in the purchase of Bigler Investment Management, a Farmington, Conn., firm that manages fund-of-fund accounts. . . . The purchasing entity, called The Crossroads Group, is expected to take on a much more aggressive money-management outlook. . . . other investors in The Crossroads Group are parties that have had 'long relationships' with Royal Hawaiian . . . Massachusetts equity analyst Steven P. Galante said his own research found Bishop Estate purchased about a 60 percent stake in The Crossroads Group. The management team and others own the remaining interest. . . . According to Galante . . . principals of The Crossroads Group are: Charles M. Harmon, Jr., an investment banker and former general partner at Goldman, Sachs & Co. in New York; Larry I. Landry, chief investment officer of John D. & Catherine T. MacArthur Foundation in Chicago; and Brad Heppner, a consultant at Bain & Co. in Dallas and former director of private investments at the MacArthur Foundation. . . . All have prior experience with Bishop Estate. In 1993, the MacArthur Foundation, along with D uke University's endowment fund, backed the formation of a Boston merchant bank called Orion Capital Partners LP. . . . Harmon is familiar with Bishop Estate because the Hawaii trust owns 10 percent of Goldman Sachs. . . . Harold E. Bigler, Jr., founder of the company, has wanted to retire . . . Bigl er Investment Management's fund-of-fund clients include Connecticut State Treasury . . . An article by Mike McIntire and Jon Lender in the October 29, 1999 edition of The Hartford Courant reports: The Texas-based managers of an investment fund with a solid track record handling state pension money say they lost a $100 million investment deal in 1998 because they refused a directive from then-Treasurer, Paul Silvester, to pay a finder's fee to someone of his choosing. . . . After Crossroads Investment Co. lost the deal, a Crossroads executive who had negotiated with Silvester left the firm, set up his own company and -- after agreeing to pay the $1.75 million fee -- was awarded a $100 million investment, according to documents and sources. . . . Silvester had been negotiating a possible $100 million investment in the Crossroads Constitution Fund. The state already had $300 million invested in Crossroads dating back to 1987, when, during an era in pension deal-making, the Hartford-based Crossroads had a contract to pay millions in fees to a partnership involving Democratic power broker Peter G. Kelly. . . . By the time Silvester began talking to Crossroads in 1998, the fund's assets had been acquired by a group of Texas investors, who were not interested in forking over the kind of fees Crossroads had paid Kelly and his associates. So when Silvester told Crossroads representative Larry Landry that a fee would need to be paid, the new management at Crossroads said no. . . Last summer, Landry, a former chief investment officer of the philanthropic MacArth ur Foundation, left Crossroads to set up the Westport Fund . . . Silvester has alleged that he had arrangements with others to whom he steered fees, whereby they would kick back some of the money . . . Part of the revelations about Crossroads and Westport surfaced in court documents related to a dispute between the new management of Crossroads and Finley Associates, the Kelly group that had collected fees for years from the old Crossroads team. Information made public because of the dispute shows just how lucrative the finder's fee business can be for influential politicians. . . .In 1987, George C. Finley, Kelly's associate in Finley Associates, signed a consulting agreement with Crossroads whereby Finley Associates would help Crossroads win state pension investments and be paid 20 percent of the fund's management fees. At that time, the principal partners in Crossroads were Peter M. Seigle and Harold E. Bigler, Jr., both local businessmen. . . . Between 1987 and 1992, then-Treasurer Francisco L. Borges, a Democrat, invested $300 million of pension funds with Crossroads, generating fees for Finley that were paid in quarterly increments of $162,750, court records show. Borges was aware that Finley and Kelly - a former finance chairman of the Democratic National Committee and a powerful figure in Connecticut politics - would be reaping fees, because Finley disclosed the arrangement in a letter to Borges dated May 14, 1987. . . . When a group of Texas investors took control of the Crossr oads Constitution Fund in August 1998, they stopped making payments to Finley, court records show. Heppner, the Crossroads CEO, said in his letter that Kelly and Finley complained, saying they were due to receive $3 million more in fees until 2004. . . . In May, both sides reached a settlement in which Crossroads agreed to pay Finley Associates $2.3 million for continued work on behalf of the fund. But Crossroads said it stopped making the payments in September, after reading news accounts that said the State Ethics Commission was investigating whether fees paid to finders for pension investments violated the state's restrictions of administrative lobbying. Now, Crossroads and Finley Associates are suing each other . See also: Kamehameha Schools/Bishop Estate; MacArthur Foundation; Adele Smith Simmons; Marsh & McLennan; Mellon Bank; WCI Communities; Bedford Properties; Paul J. Silvester; Goldman Sachs & Co.; Charles Harmon, Jr.; Carlyle Group; Orion Capital Credit Lyonnais - In 1996, Credit Lyonnais was the world's largest non-Japanese bank, ultimately owned by the French Government. From the 10/01/96 net article, Credit Lyonnais & L.F. Rothchild Ready to Topple by J. Orlin Grabbe: What will happen when the world's largest non-Japanese bank topples? The repercussions will ripple throughout the world banking system. Get ready to see Citibank, Chase and the Chicago Mercantile hammered. . . . Credit Lyonnais has long relied on two simple mechanisms to ensure its bloated growth; a ready supply of money-laundering deposits from the Cali cartel and similar sources, and financial infusions from the French government (which owns most of the bank) when all else fails. . . . Meanwhile, the bank has frittered away its assets in an endless array of non-performing loans. Representative of this is Credit Lyonnais' financing of Giancarlo Parretti's purchase of Metro-Goldwyn-Mayer from Kirk Kerkorian in 1990 for $1.3 billion. Later, in 1992, Credit Lyonnais acquired the assets of MGM, which it then sold to a Kirk Kerkorian-backed group for $1.3 billion earlier this year . . . after having pouring millions of dollars into the company. . . . The big private loser so far is L.F. Rothschild, much of whose fortune is tied up in Credit Lyonnais. . . . Meanwhile, the European Commission has launched a series of investigations into a number of suspicious transactions associated with Credit Lyonnaise. . . . Finally, there is the usual assortment of dead bodies that often appear in the banking world when millions of dollars are at stake. One of these is Armschel Rothchild, who until his demise was the chairman of British mutual fund group, Rothschild Asset Management. Amschel committed suicide by a very innovative method back in July. He took the belt from a hotel robe, tied one end to a towel rack, and the other end to his neck. He then hanged himself by, well, let's see, "jerking back suddenly." . . . Hmmmmm. Dixie Mafia - From: The Secret Life of Bill Clinton: . . . Banned by edict from smuggling drugs, the Italian American Mafia missed out on the most lucrative crime wave of the twentieth century. It was left to others to profit from the $100 billion a year market in cocaine, marijuana, and methamphetamines. Those best placed, by geography and criminal tradition, were the loose-knit groupings of the South, known to law enforcement as the "Dixie Mafia." . . . The term was first coined by Rex Armistead, the Director of the Organized Crime Strike Force in New Orleans in the 1970s. Less famous than the Cosa Nostra, the Dixie Mafia was, and still is, far more dangerous. During a ten year period from 1968 to 1978 when the Italian Americans were in the headlines for a spree of thirty murders, their redneck counterparts quietly dispatched 156 victims. . . . "There wasn't a well from Mississippi to West Texas that didn't have a dead body floating in it," said Armistead. . . . The Dixie Mafia formed a ring of interlocking interests that covered Louis iana, Texas, Oklahoma, Kentucky, Tennessee, and above all Arkansas. . . . The coat-and-tie yuppies of the modern Dixie Mafia are the children and grandchildren of bootleggers, a provenance they share with Bill Clinton. The trade has evolved. Clinton's grandfather used to serve moonshine from behind the counter of his store in Hope. Now the business is a high-tech operation involving fleets of aircraft, off-shore banking, and deep reach into the U.S. federal government. . . . Among the famous names of the Arkansas oligarchy that jumped out from page after page of criminal intelligence files was Don Tyson, the billionaire president of Tyson Foods and the avuncular patron of Bi ll Clinton and Hillary Clinton. . . . See also: Tyson Foods Enron - From The Buying of the President (1996 ed), regarding contributions to Republican candidate, Phil Gramm : . . . The name of one company in particular might have caught Wendy Gramm's attention: Enron. . . . It's a fairly large company, based in Houston. Of all the companies that wrote to the CFTC (Commodity Futures Trading Commission) seeking the exemption (of energy derivative contracts from federal regulation), Enron was the biggest donor to Gramm campaigns, giving $34,100 over the years. . . . After taking actions that led to the exemptions from regulation, Wendy Gramm (wife of Phil Gramm and chosen by Ronald Reagan to head the CFTC in 1987) resigned on January 20, 1993, the day Clinton was inaugurated. Five weeks later, she was named to Enron's board of directors. The part-time position pays her $22,000, plus $1,250 for each meeting she attends. In April 1993 the commodities commission voted 2 to 1 against regulating the business. . . . In its 1992 annual report, Enron calls itself the "manager of the largest portfolio of fixed-price and natural-gas derivative contracts in the world." The company also has roughly $4.5 billion in interest-rate swaps, another exotic transaction that Wendy Gramm helped to exempt from deregulation while she was at the CFTC... See also: Commodity Futures Trading Commission Goldman Sachs Group - The Goldman Sachs Group is a leading global investment banking and securities firm with three principal business lines: Investment banking; Trading and Principal Investments; and Asset Management and Securities Services. >From The Wall Street Journal, April 25, 1995: Bishop's Gambit - Hawaiians Who Own Goldman Sachs Stake Play Clever Tax Game - Their Trust Is Educational, But Investments Produce Big Incomes for Trustees - Macadamia Nuts For The IRS. . . .The giant Hawaiian trust that now owns 11% of Goldman, Sachs & Co. bills itself as a charity. It's an increasingly tough sell. . . Take executive pay: For the year ended June 30, 1993, Bishop's five trustees earned $820,000 each -- payments calculated, in unusual fashion, partly as a percentage of the trust's tax-free investment income. . . . Wheeling and Dealing -- Bishop Estate doesn't invest like a traditional charity either: Instead of passively pursuing rent, interest and dividends, Bishop wheels and deals in the world of shopping centers, apparel chains . . . The highly secretive trust enjoys near-Olympian status in Hawaii and disdains scrutiny from outsiders. . . . The architect of Bishop's diversification was then-trustee Matsuo Takabuki . . . a man who savored "relationship investing" with the rich and socially prominent. . . . In short order, the trust became investment partners with the Rockefellers, Wendy's hamburger-chain founder Dav e Thomas, Marshall Field scion Frederick W. Field and former Treasury Secretary William Simon, among others. . . . On the federal level, some warn that Bishop risks violating the IRS prohibition against "excessive personal benefit" as a result of its executive compensation scheme. "The IRS is quite concerned with organizations where people are being paid a great deal," say Dan Langan, a spokesman at the National Charities Information Bureau, a watchdog group. "You've hit the jackpot with this group." . . . Moreover, during the past several decades, Bishop has nurtured close ties with the IRS, whose employees in Washington and Los Angeles are visited periodically by Bishop officials -- sometimes bearing chocolate-covered macadamia nuts. . . . there are signs, though, that Bishop Estate is looming larger on the politicians' radar screen these days -- thanks in part to Treasury Secretary R obert Rubin, former chairman of Goldman Sachs. In December, 1992, shortly after Bishop purchased its first Goldman Stake, Mr. Rubin, who had just been named U. S. Secretary of Treasury, needed to divest himself of his limited-partnership interest in Goldman Sachs . . . In just one phone call from Goldman, Bishop agreed to guarantee, for a fee, Mr. Rubin's Goldman limited-partnership interest in the unlikely event that the firm ever went under. Bishop will get to pocket about $1 million in fees from Mr. Rubin and to enjoy the satisfactions, however intangible, of having a lasting relationship with the man who now, it turns out, oversees the IRS. . . . Mr. Rubin, who has recused himself from Bishop and Goldman matters, disclosed that arrangement last February when questions were raised about his and Goldman Sach's potential stake in the Mexican bailout. Now the House Banking Oversight and Investigations subcommittee is planning hearings in which Mr. Rubin may be questioned about his financial links both to Goldman Sachs and Bi shop Estate. . . . Separately, Bishop's federal subsidies are also under review again in Congress -- where the once-influential Hawaiian delegation is suddenly part of the minority party. Says Rep. John Boehner, a Republican from Ohio who led an unsuccessful fight last year against the handouts, "The Bishop Estate is pushing the limits of the law and deserves more scrutiny. . ." >From The Buying of the President: . . . Goldman Sachs has enjoyed very good relations, as you might expect, with the Clinton Administration since January 20, 1993. Not only did the firm's co-chairman join the president's cabinet, but Kenneth Brody, a Goldman Sachs general partner until 1991, was appointed by the president to be chairman of the Export-Import Bank. . . . Goldman Sachs , the president's top career patron, contributed $15,000 to the Democratic party since Bill Clinton's inauguration, and also has ties to the president's legal defense fund, which was begun to defray the Clintons' legal expenses from the Whitewater investigation and a sexual harassment civil lawsuit. Although the Office of Government Ethics looks unkindly on anyone who solicits contributions for the defense fund, a Washington lobbyist for Goldman Sachs, Michael Berman, has raised money for just that purpose . . . The general counsel of the President's Legal Defense Trust was Bernard Aidinoff, whose law firm, Sullivan and Cromwell, has done substantial work for Goldman Sachs, and has contributed $37,600 to Clinton. . . . Much has already been reported about Robert Rubin and his old firm's interests in Mexico, but there is one point that bears mentioning again. Rubin spearheaded Goldman's move into Mexico, and the firm had steered billions of dollars to that emerging market over the years. The peso crisis of 1993-94 came to a head just as Rubin was becoming treasury secretary. His one-year recusal from dealing in matters affecting Goldman Sachs had ended. By helping Mexico to make good on its commitment to bondholders, the $20 billion U.S. portion of the bailout was viewed by some as a publicly-financed insurance policy for Rubin and Goldman Sachs, along with other large investment houses and banks that were highly exposed in Mexico. Rubin was a partner in the firm and could be civilly liable for claims by investors. Mexico has already used the bailout money to pay back investment banks. If the bailout was not a guarantee, the investment community was further reassured by the "Framework Agreement For Mexican Economic Stabilization," signed by Treasury Secretary Rubin and the Mexican Ministry of Finance on February 21, 1995. The document gave the Department of the Treasury "the right to distribute, in such manner and in such order of priority it deems appropriate" the Mexican export revenues it now controls. In other words, Robert Rubin had the power to grant first rights of payment to whomever he chooses, including the holders of Mexican bonds purchased from Goldman Sachs. . . . The Savings and Loan Disaster, Rubin, and Altman. Estimates of the cost to the economy of the savings and loan crisis range from $150 billion to $1.3 trillion. When it came time for the Clinton administration to supervise resolution of the debacle, the president put in charge two men who came from the sector that would end up making money off the disaster: Wall Street. Both Rubin and Deputy Treasury Secretary Roger Altman, formerly of the Blackstone Group, joined the administration after their investment banking firms had mad millions of dollars in the clean-up of the savings and loan disaster. The government was relying on Wall Street to sell the failed thrifts and Goldman, in particular, was one of the early and biggest players, purchasing "several billion" in assets. Neither Rubin nor Altman was directly involved in their firms' thrift work, but in one case that began while Rubin ran Goldman, a Reso lution Trust Corporation (RTC) audit found, in general, that both Goldman Sachs and the RTC behaved improperly in pursuing the deal and concluded that the adverse effects were magnified by the RTC having given Goldman Sachs an increased role as underwriter. Essentially, Goldman Sachs was both buying and selling properties. The RTC was created in 1989 to clean up the savings and loan mess. . . . "We believe the $10.1 million in fees that RTC paid to Goldman Sachs for assets that it did not sell were unreasonable." . . . >From The Spotlight, by Martin Mann, May 11, 1998: Elite Gobble Your Tax Dollars. The House and the Clinton administration are eye-ball to eye-ball on billions for the IMF. The key question is, who benefits? . . . The Clinton administration is pressing Congress to vote a hefty new handout -- some $18 billion -- to the International Monetary Fund (IMF) this year. Congress, for its part, has been hanging tough, having twice thwarted the administration's effects. . . . These stories have been well covered in the mainstream media. But what has been missing from the White House press releases -- and mainstream media reports -- is where the money really goes. . . . To make up for such lack of candor, this populist newspaper has launched its own inquiry to find out just who gets the dough rolled out for this conspiratorial one-world financial bureaucracy The answers turned out to be revealing. . . . First rakeoff rights off the top go to Goldman Sachs, the giant Wall Street investment bank where Treasury Secretary Robert Rubin made his first billion in the anything goes 1980's . . . Goldman Sachs has been retained as a lavishly-paid financial adviser, underwriter and syndicator both by the governments of South Korea and Indonesia, as well as some of the largest banks and corporations in these sorely squeezed countries. BILLIONS INVOLVED . . . Under current arrangements, stage-managed by Rubin and his faithful sidekick, Undersecretary of the Treasury Laurence Summers, Indonesia and South Korea are slated to share an eye-popping $100 billion in IMF bailout funds during the next 16 months or so. . . . "You'd think most of the loot would go to help ease some of the crushing dollar-denominated debt of these hard-hammered Asian economies -- at least, that's what Rubin and Larry Summers claim," commented Fred Ackerman, a veteran Wall Street trader in international debentures. . . . Nothing like it, warned this veteran money manager. "In reality, the IMF's bailout is being used mainly as loan insurance to enable Indonesia's and Korea's tapped-out state agencies and corporations to borrow even more in the global markets." . . . Goldman Sachs, chosen as the lead underwriter and syndicator of new bond issues for some of the largest Southeast Asian borrowers, is already collecting millions -- and is expected to collect tens of millions -- of dollars in fees and royalties for helping to pile more debt on the stumbling Indonesian and Korean economies. . . . "It's like one of Mike Milken's daisy chains, isn't it?" asked Ackerman sarcastically, referring to the fraudulent syndicates set up in the '80's by convicted swindler Michael "Junk King" Milken to rig the bond markets. . . . In much the same fashion, there is just a thinly veiled linkup between the official acts of Treasury Chief Rubin -- known to insiders as the most powerful man in Washington as well as the main back-channel promoter of the IMF -- and the huge profits skimmed by his once-and-future firm, Goldman Sachs, from such international bailouts, Wall Street sources say. . . . The second kickback from the IMF bailout goes to what even the Wall Street Journal calls "vulture capitalists" -- that is, international financiers who pounce on distressed corporations, buy them out at knockdown prices, and then use "special connections" to make a killing on the deal. This is what happened in Mexico in 1994-95, and it's happening now in Southeast Asia, Wall Street sources say. . . . For an example, they cite the case of Daewoo, a major Korean car manufacturer, crushed by a back-breaking $3 billion debt it could no longer service after international speculators, led by George Soros, raided Korea's currency and devalued it by more that a third last year. . . . An international syndicate headed by General Motors and advised by Goldman Sachs is now negotiating to buy a controlling interest in Daewoo at a time when they can acquire the huge bankrupt manufacturing complex at a steep discount, something like "15 cents on the dollar," these sources averred. . . . "That's a real sweet deal for the vulture investors grabbing Daewoo, but will they also get stuck with its $3 billion in outstanding debt," asked Dr. Gottfried Sieberth, the dean of European financial writers based in the U.S. . . . Not if the IMF cash is divided up the way it was in Mexico, where it was used to buy up the defaulted loans of the biggest banks and corporations, explained this knowledgeable observer. . . >From USA Today, May 3, 1999: Trust Scandal Haunts Goldman -- Sullied Bishop Estate Owns 10% of Bank: Daytime television has nothing on the Bishop Estate, a charitable trust that will make a huge windfall in Goldman Sachs' initial public offering expected Tuesday. . . . The trustees of the estate are mired in an explosive scandal with subplots of greed, cronyism, sex and suicide that are worthy of the tawdriest soap opera. . . . Kamehameha Schools/Bishop Estate was set up 115 years ago to educate Hawaiian children as stipulated in the will of Princess Bernice Pauahi Bishop, the last direct descendant of the king who united the islands. With assets of about $10 billion, it is one of the richest trusts in the USA and the largest private landowner in Hawaii. . . . Among its assets: a 10% stake in Goldman Sachs, the leading investment bank that is ending its long reign as a private partnership. When Goldman goes public, the estate stands to at least triple the value of its $500 million investment. . . . >From The Wall Street Journal Interactive Edition, May 4, 1999: Goldman Sachs Leaves Little To Chance With Red-Hot IPO. . . . The IPO which raised $3.66 billion, ranks as the largest financial-services IPO ever . . . Top executives at Goldman, such as Mr. Paulson, received shares in the company valued at as much as $200 million. . . . Goldman itself sold 51 million shares. Two Goldman shareholders, Kamehameha Activities Association and Sumito mo Bank Capital Markets, a unit of Sumitomo Bank, also sold nine million shares each, leaving them with Goldman stakes of 4% and 5%, respectively. . . . From: Fortune, May 10, 1999: Goldman Goes Shopping - On the eve of its initial public offering, Goldman Sachs has Wall Street's attention. It's the last of the great private investment banks to go public, and its IPO is the most alluring so far this year. Goldman will sell 11% of the firm during the first week in May. The offering will be priced between $45 and $55 per share and could fetch more than $3.3 billion. That would put a value of $25 billion on the whole company, making it the largest financial services IPO ever. But what's really got Wall Street matchmakers abuzz is what happens next: What will Goldman do with all of that valuable currency? . . . The firm wants to bolster the $277 billion in assets that it now manages for pension funds, foundations, and high-net-worth individuals. That is an important part of the bank's grand plan to become the premier "wealth manager" for affluent individuals. . . . T. Rowe Price Associates of Baltimore, always rumored to be a takeover target, would be a near-perfect fit. It manages $148 billion in assets -- 45% of which are for large institutions and elite investors. . . . A mvescap, the result of the 1997 merger between Houston-based Aim and U.K.-based Invesco, would give access to international investors. Another frequently mentioned target, though even more obscure, is Capital Research & Management. . . . An insurance play is another possibility. Marsh & McLennan is said to have rebuffed several would-be buyers of its Putnam Investments management group. But Putnam isn't the only big draw for Goldman Sachs. A steady stream of income from insurance fees would quell Wall Street's concerns that Goldman's sales are linked too closely to trading. "Marsh & McLennan has a hammer-lock on the insurance brokerage business globally, and its asset-management group, Putnam, is clearly of the necessary stature," says Donald Putnam . . . From: Goldman Sachs, by Lisa Endlich: . . . Above all, (Sidney) Weinberg showed unswerving devotion to his clients. . . . He had restored the firm's good name and laid the groundwork for its later profitability. For decades to come Goldman Sachs would benefit from the goodwill generated by this one man. Sidney Weinberg was the embodiment of Goldman Sachs; no one would ever play a comparable role . . . The day after Sidney died on July 23, 1969, his obituary ran on the front page of the New York Times, alongside news that U.S. astronauts Armstrong, Aldrin, and Collins were returning from the moon. . . . GUSTAVE LEHMANN LEVY was the obvious and only choice to succeed Weinberg as senior partner of Goldman Sachs in 1969. ... Weinberg's style of doing business had no place in Levy's rough-and-rumble trading world. While Weinberg strove to associate Goldman Sachs's name with the finest corporations in America, those closest to Levy say his aspirations were more mercantile -- he simply wanted to do all of the business. . . . The choice of Levy to head an investment bank was an unusual and ultimately pivotal one. The senior partners of the firm's major competitors at the time were bankers. Goldman Sach's business and culture were heavily weighted toward banking as well, but with a trader at the helm Goldman Sachs would become prepared for the trading-oriented world that would emerge in the early 1980's. One of Levy's greatest contributions was to prepare the firm psychologically for the risky world of proprietary, mortgage-backed securities, and derivative trading . . . Levy brought trading risk to Goldman Sachs and thereby set the firm on an entirely different path from the one Weinberg had steered. . . . Weinberg had averred risk, arguing that it had once almost fatally damaged the firm's name. Levy, too, was concerned about the firm's reputation, but he was aggressive and ambitious and wanted Goldman Sachs to make money. . . . Levy was an impatient, almost hyperactive man . . . During his earliest days in the arbitrage department, [Robert] Rubin got a taste of Levy's famed impatience. Rubin, analytically minded, had discovered a complex trading opportunity involving warrants that would allow the form to buy stock at an attractive price in the future. Levy, who himself thrived on elaborate deals, hated long explanations. Rubin took the idea to his boss, who listened for about a minute. . . . "Stop! D'ya wanna buy or d/ya wanna sell?" Levy shouted at Rubin in his New Orleans drawl. Rubin tried again. "Gus, it's not that simple . . ." ... "I don't care!" Levy hollered. "D'ya wanna buy, or d'ya wanna sell? Don't waste my time." . . . Although the firm had a long-established practice of hiring M.B.A.'s, Levy, a man without a degree, had his own system for staff recruitment. Early in the morning, before the markets opened, he would invite high school seniors into the office to play bridge or poker with him. He would play whichever game each visitor knew best, watching how his opponent's mind worked. Did he remember which cards had been played? Could he judge risk? Under pressure, could he keep his wits about him? These were the skills he sought. Successful trading, Levy believed, rested on ability as well as steely nerves, integrity, and luck. For years many of the firm's best traders had no higher education, but had passed Levy's entrance exam. . . . BLOCK TRADING, which revolutionized the exchanges and is now the predominant method for buying and selling large stock holdings, was Levy's brainchild. After World War II the country's assets had become institutionalized. Many companies set up self-administered pension funds that pooled savings but invested only in bonds. Slowly, as the wisdom of diversifying into equities spread and the painful memories of the crash receded, these funds began to purchase stocks. As the first sizable investors they found the market too small and illiquid to accommodate their transactions. The New York Stock Exchange had been established to facilitate the business of the individual investor and had operated that way since its inception. Specialists who had provided a bid and an offer for stocks from the exchange floors were unable to handle the increasing volume. Levy proposed a novel solution. He would split trades with the specialists, taking part of the price risk and opportunity for profit onto Goldman Sachs's books. For a time this system worked, but the transaction size continued to increase, and even half became too large for the specialist system. Levy stepped into the fray again, committing Goldman Sachs to buying large block's of stock, often in advance of finding a ready buyer. By situating itself in the flow of information and trading, the firm put itself in the best position to locate the other side of any transaction. . . . FOR WALL STREET the early 1970s were wretched times. In January 1973 the Dow had stood at 1,051 and by December 1974 it had almost halved to 578 and would not rise above 1,000 again until 1980. For Goldman Sachs, which would struggle with low earnings and a spate of lawsuits, this would be a particularly difficult time. The low point in Levy's management of the firm came in February 1979, after the Penn Central Railroad reported dismal earnings. An official of the National Credit Office (the agency that rated commercial paper) telephoned Goldman Sachs, Penn Central's commercial paper issuer, to discuss the railroad's creditworthiness. The firm reassured the official of its generally positive view of the situation, and the paper's "prime" rating was left in place. . . . Goldman Sachs continued to sell Penn Central paper, but took steps that minimized its own exposure to the securities. While still recommending the commercial paper to customers, the firm feared that there would be little customer demand and insisted that henceforth it would provide customers with Penn Central paper from a "tap" -- that is, the railroad would issue a specified amount whenever Goldman Sachs brought them an interested buyer. In this way, Goldman Sachs would have no more than $8 million in inventory. . . . When Penn Central plunged into bankruptcy, panic engulfed the commercial paper market. Investors concerned about the solvency of other issues by Goldman Sachs--the firm had about 300 issuers at the time--rushed to redeem their securities. Corporations all over America had to borrow from banks to repay these short-term debts, and the Federal Reserve was forced to act to ensure continued liquidity. ... Goldman Sachs has assumed, incorrectly, that the Federal Reserve would rescue the railroad by providing it with the needed liquidity. The $3 billion in assets held by Penn Central, they believed, were sufficient to cover its debt--the company simply lacked available credit. Levy testified later that at no time was he concerned about the solvency of the railroad. Regardless, Goldman Sachs was censured by the Securities and Exchange Commission for its actions and required to give customers more detailed information about issuers in the future. Despite the fact that Goldman Sachs had access to a great deal of adverse financial information about Penn Central, the SEC said that it "did not communicate this information to its commercial paper customers, nor did it undertake a thorough investigation of the company. If Goldman had heeded these warnings and undertaken a reevaluation of the company, it would have learned that its condition was substantially worse than had been publicly reported." . . . For Goldman Sachs the episode was nothing short of a disaster. The firm's good name, nurtured for so many decades by Sidney Weinberg, was once again tarnished, its credibility damaged, its finances precarious. . . . Clients lined up to sue the firm, with Goldman Sachs named in at least forty-five lawsuits. The railroad had defaulted on $87 million worth of commercial paper at the time of the bankruptcy, and the firm faced potential lawsuits for an amount greater than the partners' capital, which stood at only $53 million at the time. It was a frightening time for the forty-five partners, because their personal liability was unlimited. Although the firm did not admit liability, it eventually settled with many clients, buying their paper back for between twenty and twenty-five cents on the dollar and granting them some participation in any recovery of funds that might be made from Penn Central. In October 1974, Welch's Foods and two other plaintiffs sued the firm, and the case went to trail. A federal jury found Goldman Sachs guilty of defrauding its customers by selling them Penn Central commercial paper in 1969 and 1970, when the railroad was going broke. The firm was forced to buy back the commercial paper from the plaintiffs at its face value plus interest. The immediate results were damaging both to Goldman Sachs's reputation and its finances, but the firm had bought back much of the paper at a heavy discount to the face value, which later rose sharply, and this helped mitigate the level of losses eventually sustained. . . . In October 1976, Levy suffered a stroke and collapsed while chairing a board meeting . . . Leaderless, the firm was left in turmoil. . . . WHY EXACTLY LEVY failed to name a successor will remain a mystery . . . In her book, Goldman Sachs, the author writes that the two leading contenders for Levy's leadership seat were John Whitehead and Sidney Weinberg's son, John L. Weinberg, and that eventually they were elected to co-chair the firm. Sidney, according to the author, had given his son advice about the business, and relates a story about him sending John to see Floyd Odlum, the man to whom he had sold the Goldman Sachs Trading Corporation: While the other meetings John attended may have produced some sound advice, Odlum's words still ring in John's ears some fifty years later . . . Odlum offered the younger Weinberg these prophetic words of advice: "I am going to do something for you. I will give you this book, but you have to promise me that for the whole rest of your career, you will keep a copy of this book and refer to it. . . ." The book was Popular Delusions and the Madness of Crowds by Charles McKay, originally published in 1841. "Watch for the excesses," Odlum warned. "No one is going to tell you what they are or when they will arise; each time they will look different." Excesses will be taken care of by the marketplace, he told the younger man, but as each generation forgets the lessons of the last, the same mistakes are made again. He cautioned that success would come only to those who could recognize and correctly value risk. Weinberg took the book and the elder man's advice to heart. To this day he keeps a copy of the book in each of his offices . . . Odlum's words of advice ultimately saved Goldman Sachs from hundreds of millions of dollars in losses in business the firm walked away from. Goldman Sachs's success in the 1980s can be attributed not only to what it did but perhaps, more important, th what it did not do. Goldman Sachs steered clear of making hazardous bridge loans (short-term loans made by investment banks until public funding becomes available) and involved itself in few failed leveraged buyouts. . . . By the 1970s, Levy's legacy had passed to consummate trader Rubin, who was so fond of his mentor that even as secretary of the treasury he still has Levy's picture hanging on the wall. . . The 1980s would mirror the 1920s with an eerie deja vu. The market rally, the ensuing crash, the financial scandals, the merciless government investigations -- all had been witnessed sixty years earlier. Goldman Sachs had been dealt a body blow in the final days of the 1920s, and it would not escape the 1980s unscathed. The takeover wave would bring new and unimagined opportunities, as hostile tenders and "greenmail" provided price aberrations of the kind that arbitrageurs thrive upon. Working with a $1 billion portfolio of securities, Rubin and his half dozen assistants immersed themselves in the takeover mania of the 1980s. Robert Freeman was Rubin's number one assistant, soon becoming a partner in the division. . . . For years the "Chinese Wall" -- the veil of secrecy intended to keep confidential information from traveling from one department to another -- betw een banking and arbitrage was paper thin. Bankers all over Wall Street hopped the divide with frightening regularity, consulting with traders about the market's perception of a deal . . . The risk arbitrage department at Goldman Sachs acted as in-house consultant to the firm's merger specialists in a way that was entirely legal. Arbitrageurs provided expert advice in evaluating the complexities of a deal and calculating the potential market reaction. . . . Consultations between the two departments would continue until 1986, when the trading environment on Wall Street and what was considered acceptable practice changed radically. . . . On May 12, 1986, Dennis Levine, an investment banker at Drexel Burnham Lambert, was arrested and charged with making $12 million on insider trading. . . . the stories remained on the front pages of newspapers of the nation until the end of the decade. By then, dozens of individuals had been arrested, their firms humiliated, as billionaires traded in their mansions for jail cells . . . The SEC investigations that began in 1986 changed the entire climate on Wall Street. Previously accepted and legal practices came under scrutiny as firms tightened their internal controls in response to a more thorough and aggressive SEC. Many of the accepted practices at Goldman Sachs and other firms that allowed arbitrageurs unimpeded access to information -- talking with the bankers working on a particular deal, for example -- would be closely scrutinized and after 1986 changed dramatically. . . . No one dreamed of the damage a minor figure at a second-rate firm could do to Goldman Sachs. . . . Information provided by Levine resulted in the arrest of a group of relatively junior bankers from Shearson Lehman, Lazard Freres, and Goldman Sachs. These young men had made relatively little or nothing from their illegal activities but would pay a huge price. The Goldman Sachs banker, who pleaded guilty, was very junior and left the firm immediately. . . . Then, in a desperate plea bargain agreement, Levine offered up Ivan Boesky, the best-known arbitrageur of the day. Boesky had preached greed, financial success, and self-interest as acceptable, even morally laudable goals. . . . On November 14, 1986, Boesky was arrested, pled guilty to charges of insider trading, and paid the then unheard-of fine of $100 million. He, in turn, implicated Martin Siegal, a well-respected and successful banker and merger expert who recently had moved from solid Kidder Peabody to more daring Drexel. Siegal had accepted suitcases of cash in exchange for tipping Boesky about upcoming takeovers. Seigel then pointed his finger directly at Robert Freeman, chief of risk arbitrage, head of international equities, and trusted partner of Goldman Sachs. . . . On the snowy morning of February 12, 1987, special deputy U.S. Marshall Thomas Doonan and two postal inspectors, all armed, walked onto the 29th floor trading room of Goldman Sachs. They quickly located Freeman and asked him to step into his glass-fronted office. There they lowered the blinds and told the shocked Freeman that he was under arrest. . . . Goldman Sachs and much of the financial world was in shock. This was a partner of the firm with the cleanest reputation on Wall Street. . . . Freeman was a high-ranking partner who had worked with both Rubin and Friedman, and Goldman Sachs would not distance itself from him. . . . Many within the firm have suggested that it was ... the culture of the firm, its commitments to sticking by those in trouble, that caused the firm to pursue Freeman's defense so doggedly. A more cynical explanation is that in a private partnership, where liability is unlimited, there is a strong incentive to diminish the guilt of any member of the team. . . . For two years the firm's top management was consumed with Freeman's defense. . . . On April 9, 1987, Freeman was indicted on federal charges of conspiracy to violate securities laws. . . . On Feb 12, 1988 . . . James Stewart and Daniel Hertzberg, both Pulitzer Prize-winning editors and writers for the Wall Street Journal, wrote an article that would change the course of events. . . . Based on their own investigation, the story alleged a detailed catalogue of misdeeds by Freeman in his relationship with Siegel, all but one of which Freeman would staunchly deny. . . . It was the final allegation -- the one concerning the now famous "bunny" comment -- that would be Freeman's undoing. . . . In October 1985, the leveraged buyout firm of Kohlberg, Kravis, Roberts and Co. (KKR) had offered almost $5 billion, at $45 a share, for Beatrice Corporation, in what was the largest leveraged buyout to date. . . . Martin Siegel was one of KKR's investment bankers. . . . The bid was raised to $47 on Oct 29, and Freeman purchased shares of Beatrice for both the firm's arbitrage account ($66 million) and his personal account ($1.5 million) after details of the increased offer were made public. On Nov 14, Beatrice and KKR announced an agreement on a price of $50 per share, $43 in cash and $7 in securities. Freeman was so confident that this bid would go through that he invested almost 40 percent of his family's "at risk" trading accounts in Beatrice. . . . On Jan 6, KKR began to fear that the deal could not be financed at that lofty price. The next morning, Freeman bought an additional 22,500 shares in Beatrice for his own account. During the day, trading volume was heavy . . . and the price edged downward, which concerned Freeman. At the end of the day, Goldman Sachs's position was worth approximately $66 million, or $16 million over the usual limit for friendly takeover situations. . . . On Jan 7, Goldman Sachs executed a large sale for a well-known arbitrageur named Dick Nye. When Freeman learned of this trade he grew even more concerned. During the course of that afternoon Freeman spoke to Marty Siegel three times and once to Henry Kravis of KKR . . . Freeman then proceeded to sell all the shares he had purchased that morning. The following morning, Jan 8, Freeman put orders in the market to sell his entire personal holding and to reduce Goldman Sachs's position to below the $50 million level. Later that morning, a floor trader known as Bernard "Bunny" Lasker called Freeman to say he had heard that there was a problem with the Beatrice deal. Freeman telephoned Siegel, KKR's banker. According to Freeman, "I told Mr. Siegel that I had heard there was a problem with the Beatrice LBO. He asked from whom I had heard that. When I answered Bunny Lasker, Martin Siegel said, 'Your bunny has a good nose'." . . . Early that afternoon, an announcement was made that the deal would be restructured . . . The share price of Beatrice immediately dropped $4, closing the day at $43.25. . . . The options sales that followed Freeman's conversation with Siegel had saved the firm $548,000. . . . By the summer of 1989, worn down by the lengthy legal process, Freeman was ready to plead guilty to the "bunny" charge. . . . On April 17, 1990, Freeman was sentenced to one year, with eight months suspended, of which he served one hundred nine days (including time off for good behavior) at Saufley Federal Prison Camp in Florida. He was also fined $1.1 million by the SEC . . . After Freeman's admission of guilt, the government dropped any further investigation and Goldman Sachs sought to put the entire episode behind it. . . . THE CHANGING OF THE GUARD, heralded for so long, finally came to pass on Dec 1, 1990, when Steve Friedman and Robert Rubin were named senior partners and co-chairmen of the management committee. . . . GOLDMAN SACHS entered the 1990s in an extremely strong position relative to its American investment banking competition. The 1980s had ended, like all great parties, with scattered debris and a blinding hangover. After years of indulging in speculative financing vehicles, there was now a price to pay for the excesses of the decade. For Drexel there would be Chapter 11, scandal rocked E. F. Hutton, and Kidder Peabody would be sold. First Boston, one of the firm's major competitors in mergers and acquisitions, would be stretched to the limit by ill-advised bridge loans (short-term unsecured loans, many of which looked good in the 1980s and failed in the early 1990s) and later aided by its wealthy parent, Credit Suisse. Lehman Brothers, once one of Goldman Sachs's most formidable investment banking competitors, would be torn apart by political infighting and forced to sell itself to the America n Express conglomerate. The SEC investigation of Solomon Brothers's activities in the government bond market followed by the departure of its chairman John Gutfreund would weaken this once-insurmountable competitor, allowing Goldman Sachs's fixed income department to escape from its enormous shadow. Weinberg had recognized the excesses of the era early on, and his caution had paid off. . . . One of the biggest changes in investment banking in the 1980s was the role of the client. For more than a century ... securities firms had made their profits by servicing their clients. . . . As the 1990s began this was no longer the case. While clients were still vitally important, they were now only part of the profit picture. For Goldman Sachs, this was a cataclysmic transformation. In the 1970s, Gus Levy had sold the firm's asset management business because he did not want to compete with the firm's clients. . . . The notion of not competing with clients, however, would soon become ludicrous as clients began to compete with their investment bankers and the margins on many client businesses collapsed. Companies like General Electric would initiate their own asset management business, and American International Group (AIG), the insurance giant, would become a major force in derivatives products. . . . GOLDMAN SACHS had been expanding the size of its partnership steadily for decades. There had been fifty partners in 1973; there were seventy-five in 1983 and one hundred fifty by 1993. . . . But as the size of the partnership increased, the profits of the firm had to grow at breakneck speed if existing partners' income levels were to be maintained. . . . With his ascendency in 1990, Rubin openly discussed with the partnership the need for an expanding pie . . . Before 1986 the active partners of Goldman Sachs were entitled to almost all of its profits each year. This is no longer the case. In addition to the firm's limited partners (retired partners who choose to leave capital in the firm), Goldman Sachs has taken on three groups of financial partners. Sumitomo's investments in 1986 entitled the Japanese bank to 12.5 percent of the firm's annual profits. Kamehameha Schools/Bishop Estate, the giant Hawaiian education trust, which also made two major cash infusions into the firm, first in 1992 and again in 1994, receives about 11 percent of what the firm makes every year. Finally, a group of insurers has injected $225 million into the capital structure. Limited partners do not receive a percentage of the profits, but rather receive interest rate payments as compensation for the use of their capital. Payments made to outsider investors, before the partners see a dime, have run between $300 million and $400 million a year. Before the Sumitomo capital injection, general partners owned more than 80 percent of the firm's equity, with limited partners holding the remainder; by 1994 general partners owned a mere 28 percent although they were entitled to 74 percent of the firm's profits, down from 88 percent in 1990 when the firm had almost fifty fewer partners . . . Goldman Sachs will go down in history as the last major partnership on Wall Street. . . . "NINETEEN EIGHTY-SIX," Institutional Investor magazine proclaimed, "was the year they sold Wall Street." During the five preceding years John Weinberg had watched his major competitors incorporate, merge, or simply cease to exist. . . . Goldman Sachs, too, sold a bit of itself in 1986. The roots of the transaction took hold the year before when one morning a man who refused to identify himself telephoned Ann Ericson, John Weinberg's secretary. Would Mr. Weinberg, he asked, be in the office on a Tuesday, three weeks hence? . . . Two weeks later the same unidentified caller contacted Ericson to confirm the date, and this time she indicated that Weinberg would be in the office. When the appointed day arrived two Japanese men, a speaker and his interpreter, appeared in Weinberg's office. The man who spoke only Japanese identified himself through his assistant: I am the president of Sumitomo Bank, Koh Komatsu told Weinberg. I came here in disguise to see you. Komatsu had tried to hide his tracks. From Tokyo he flew to Seattle, Washington. There he changed planes for a flight to Washington, D.C. From Washington, he boarded the shuttle to La Guardia. He felt certain that he had made the journey undetected. . . . Weinberg was baffled by the visit. He had no way of knowing that Sumitomo Bank had long been interested in gaining a toehold in the U. S. investment banking market and had been looking at Goldman Sachs. Sumitomo, at that time the world's third largest and Japan's most profitable bank, had hired top consulting firm McKinsey and Co. to advise them on the best way to enter the market. McKinsey had recommended an investment in Goldman Sachs as the ideal mechanism. . . . As Weinberg listened to Komatsu's proposal he was amazed. The valuation given to Goldman Sachs by Sumitomo was far above the firm's own. Komatsu was offering cash, an equity injection, in return for a share of the profits. The deal was almost too good to be true. By offering to make a $500 million investment in exchange for 12.5 percent of the firm's profits, Sumitomo was implicitly valuing Goldman Sachs at $4 billion -- four times book value. Morgan Stanley had just floated itself at under three times book value, and other publicly traded investment banks were selling for less. The deal, it was stipulated, would be conducted in total secrecy, with Goldman Sachs acting as its own investment banker. . . . Catbird's Log: The Goldman Sachs' Nest 1979 - Goldman Sachs is found guilty of fraud in the Penn Central Railroad failure. 1985 - Sumitomo acquires the Tokyo-based Heiwa Sogo Bank, leading to their ascent to the number one position in Japan's banking industry -- assisted by the then-Finance Minister Takeshita Noboru and the Yamaguchi Gumi, Japan's most powerful Yakuza syndicate. 1985 - Ichiwa-kai -- a Yakuza faction -- slaughters Yamaguchi Gumi leader, Masahisa Takenaka, creating a bloody gang war. 1986 - Robert Freeman makes his infamous "insider trading" deals relating to Beatrice Foods, trading for Goldman Sachs as well as his own personal accounts. 1986 - Sumitomo acquires 12.5% of Goldman Sachs for $500 million. 1986 - The notorious Arkansas Development Finance Authority (ADFA) borrows $5 million from the Chicago branch of Japan's Sanwa Bank as a part of a $60 million deal to purchase stock in Coral Reinsurance, a Barbados company and a subsidiary of American International Group (AIG). The deal was brokered by Gol dman Sachs, whose head at the time was Robert Rubin. An AIG affiliate had also managed over $1 billion worth of ADFA bonds. 1989 - Robert Freeman pleads guilty to one count of insider trading and is later sentenced to one year in prison (with 8 months suspended), and fined $1.1 million. 1992 - Bishop Estate trustees invest $250 million of the trust's money in Goldman Sachs. 1993 - Robert Rubin, worth an estimated $100 million at the time, resigns Goldman Sachs to become U.S. Treasury Secretary. As Rubin cannot actively hold stock as Treasury Secretary, a phone call is made to Bishop Estate and the estate "insures" Rubin's stake in Goldman Sachs for $100,000 a year -- a real bargain for Rubin according to some sources. Not only did Rubin join the president's cabinet, but Kenneth Brody, a Goldman Sachs general partner until 1991, was appointed by the president to be chairman of the Export-Import Bank. 1994 - Bishop Estate invests another $250 million of the trust's money in Goldman Sachs. 1994 - The peso crisis in Mexico comes to a head. Robert Rubin had spearheaded Goldman's move into Mexico, and the firm had steered billions of dollars to that emerging market. Rubin's one-year recusal from dealing in matters affecting Goldman Sachs had ended. By helping Mexico to make good on its commitment to bondholders, the $20 billion portion of the bailout was viewed by some as a publicly-financed insurance policy for Rubin and Goldman Sachs, along with other large investment houses and banks that were highly exposed in Mexico. 1996 - One time king of copper trading, Yasuo Hamanaka, arrested on charges of forgery relating to the loss of $2.6 billion by Sumitomo Corp. in a decade of fraudulent copper trading. 1997 - Hawaii's Attorney General, Margery Bronster, begins investigation of allegations of fraud and corruption at Bishop Estate. 1998 - Two of Japan's leading banks, Sumitomo Bank and Bank of Tokyo-Mitsubishi (BTM) implicated in bribery scandal involving officials at Japan's powerful Ministry of Finance. 1999 - Goldman Sachs goes public. Rubin resigns as Treasury Secretary, and joins Citigroup a few months later. 1999 - Bishop Estate trustees Richard Wong and Henry Peters are indicted for fraud. Trustee Lokelani Lindsey is sued by fellow trustees Oswald Stender and Gerard Jervis, who demand her removal for mismanagement. Gerard Jervis is caught having sex with a female subordinate in the men's restroom of the Hawaii Prince Hotel. The female employee commits suicide the next day. Jervis attempts suicide the next week. The court removes Lindsey as trustee. All trustees are temporarily removed from office after the IRS gives an ultimatum that Bishop Estate will lose its tax-exempt status unless the trustees are removed. All five trustees permanently resign. 2000 - Lawsuits continue against the estate, now renamed Kamehameha Schools. Former trustee, Oswald Stender, brings a lawsuit against the State of Hawaii for failure to act earlier to curtail corruption at the estate. See also: Robert Rubin; Marsh & McLennan; American International Group; Coral Reinsurance; Bishop Estate; Sumitomo Bank; Yakuza. Hanford's Creations, Inc. - A company that makes Christmas decorations. Owned by Elizabeth Hanford Dole before she sold it to a group headed by Bishop Estate. Hong Kong and Shanghai Bank - From Conspirators' Hierarchy: . . . John R. Petty is president and chairman of the Marine Midland Bank -- a bank whose drug trade connections have been well established long before it was taken over by the Hong Kong and Shanghai Bank, probably the number one bank in the opium trade, a position it has held since 1814. . . . See also: Xerox Corporation and Marine Midland Bank. ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. Roads End <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are not allowed. Substance—not soap-boxing! 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