Halliburton/KBR had a revolving door for Dick Cheney that served both of them well.  Their problem is that Cheney as Vice-President was very visible, very angry, and very polarizing.  He was also the only one in the door. Goldman Sachs also has a revolving door.  It’s harder to personalize, because there are so many people using it.  None of them has quite the visibility of Mr. Cheney, nor do they speak out so publicly and with such righteous indignation.  They’re much too shrewd for that.  Goldman’s door cycles brilliant and obsessively hard-working people between the company and the agencies supposed to be regulating it.   Although many of them are Masters of the Masters of the Universe, most are rather inconspicuous, even anonymous to the outside world. But their conflicts of interest are huge.  The consequences from acting on them can be even larger, and all the more lasting because the field of finance is so mysterious and misunderstood.  It lacks the concreteness of an oil well, or even a contract in Iraq.

Halliburton’s story helps understand the magnitude – or at least the (high) lower limit – of the mischief conflicts of interest can create when they’re not sufficiently addressed and restrained.  Cheney’s first adult job in the private for-profit sector was as CEO of Halliburton, a Fortune 500 Company.  As a five-time draft deferrer, Cheney wouldn’t have been everyone’s first choice as Bush 41’s Secretary of Defense, but Halliburton certainly found his Secretarial connections attractive.  The corporation was an energy (oil services) behemoth that also provided construction and military support services.  Defense, in brief, could be its ticket to fabulous and continuous lunches.  In 1995, Cheney’s first year as CEO, Halliburton leaped from 73^rd to 18^th biggest contractor for the Pentagon.

Halliburton lucked out when Cheney became Bush 43’s Vice-President and W invaded Iraq. The combination of war and Cheney meant billions of more dollars of contracts for Halliburton subsidiary KBR.  One contract was particularly controversial because it was won without any competitive bidding: regulations were suspended due to “emergency” conditions before the invasion of Iraq.  This year, Halliburton is ranked #141 in the Fortune 500.  It would have been even higher had KBR not been spun off in 2007.

Vice-President Dick Cheney and his wife, Lynne, also did well.  They reported income of $36,086,635 for 2000, the year he resigned from Halliburton.  In 2007, back in government with a VP’s salary of $212,208, their income totaled  $2,528,068.  (These are the last figures readily available on the internet: by the time tax returns were due, the Cheneys were back in the private sector, where IRS matters remain largely …well, private.)

In the context of a banking crisis still so acute that 149 banks failed from 2008 through November 13, 2009, Goldman Sachs was ranked #40 in the Fortune 500 – more than 100 points higher than Halliburton.  Goldman Sachs is clearly too big to fail.  But why is Goldman Sachs often called “Government Sachs” and how much is its success due to financial savvy and how much to working the revolving door to and from Washington?

Goldman Sachs’ website starts kind of warm and fuzzy.  The first page you see is entitled “Our Firm”, with a picture of an attractive African-American woman who looks reassuringly empathetic. “About Us” – “At a Glance” — shows an equally attractive Asian man, looking up as if he is questing and questioning the universe – or maybe just our portfolios (if we are rich enough to have them there). Beneath him we learn, in large and gentle blue font, that

Goldman Sachs Group, Inc. is a leading global financial services firm providing investment banking, securities and investment management services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

I note the inclusion of “government” in the client base.  Goldman notes that its “activities are divided into three segments” – “Investment Banking”, “ Trading and Principal Investments”, and “Asset Management and Security Services”. These “segments” come not just with verbal descriptions but with the bar graphs obligatory in financial discourse.  Despite the calming grays and blue and the perfect grammar, this part of the second segment moves into the mysterious, with muscles flexed:  the “we” of Goldman  “take proprietary positions through market making in, trading of and investing in fixed income and equity products, currencies, commodities and derivatives on these products. In addition, we engage in market-making and specialist activities on equities and options exchanges.”  Clearly, “we” are very, very smart – and trained in matters of High Finance well beyond the reach of common mortals like me.  Goldman Sachs is well named.  It’s the gold standard of finance, worldwide.  And it sacks anyone who’s not just super-smart but super-driven, too.

Goldman Sachs is so smart that it dumped its mortgage-backed securities before the crash.  Goldman Sachs is so smart that its profits were $3.44 billion for the third quarter of this year, a quarter when unemployment continued to rise and other banks continued to fall.

The most important of its assets may not even be included in the Fortune 500 data.  It may not even be its brilliant and driven employees with all their human capital. Perhaps it’s the revolving door “Government Sachs” has established in exchanging men of talent with Washington.    Halliburton’s revolving door dates back to LBJ; Goldman’s goes well past him to Sidney Weinberg, FDR and WWII.  See Huffington Post at http://www.huffingtonpost.com/2009/06/02/government-sachs-goldmans_n_210561.html for “relation chart” designed to baffle and a list and slide show designed to disturb.  (By the way, the people in the slide show are all men – hence my pronoun above.  They’re also all white.)

When the real estate bubble burst in 2007, the stock market crashed and credit seized up, afflicted, inter alia, by those pesky mark-to-market rules.  Leverage with credit default swaps and mortgage-backed security had worked so positively in that stretch of good times.  But when things went south, leverage made them go well past the equator.  Risk, it turns out, still existed.  It was still real, systemically so.

In an advanced economy like ours, no credit means no production, and the Government rushed in to unseize credit.  In a draft document less than 3 pages long (the medical reform bill that just passed the House weighs in at 1990), President Bush proposed giving Treasury Secretary Hank Paulson essential carte blanche to rescue banks with the first tranch of the $700 billion TARP fund. In the last meaningful bi-partisan legislation seen in this country, Congress overwhelmingly approved the bank bailout.

Just who is Hank Paulson?  Someone who started working for Goldman in 1974 and went right to the top: he was CEO from 1999 to 2006. In transition to government, Paulson divested himself of his 3.23 million Goldman shares.  In office, Paulson anointed  Neel Kashkari to oversee TARP fund dispensations. Kashkari was a technology investment banker from Goldman from 2004 to 2006.  Kashkari appointed Reuben Jeffrey to the post of interim chief investment office for the bailout.  Jeffrey joined Goldman in 1983 and was an executive there for 18 years.  When Kashkari was criticized for not providing sufficient oversight of the money he disbursed, he deployed the venerable “funds are fungible” line and said that oversight would never be sufficient because of this old saw.

Team Paulson-Kashkari-Jeffrey dispensed $10 billion of their funds to Goldman.  Just what you’d expect from Republicans, right?  Keep reading.

Democrat Obama replaced Treasury Secretary Paulson with Tim Geithner, tapped from the New York Federal Reserve.  Geithner wasn’t quite big-brained enough to have worked directly for Goldman – admirable as he is for handling his own tax returns, he’d lacked the acumen to over-ride the apparent dictates of Turbo Tax, but he ramped up the collective office IQ by bringing in several assistants from Goldman and making one of them a top aide. In earlier days at the Treasury, Geithner had been mentored by Robert Rubin, Treasury Secretary under Bill Clinton and Co-Chair of Goldman Sachs from 1990 to 1992.   Rubin, you may recall, also earned his stripes –or were they spots? –  as head of  CitiGroup.

Geithner had already helped Goldman as President of the Federal Reserve Bank of New York. He let competitor Lehman Brothers go under – arguably at great cost to the country.  With former Goldman chairman Stephen Friedman the chairman of his board of directors, he also got Goldman a much better deal from AIG: 100% payment for default swaps rather than the 40% the insurance once-giant originally proposed.  William Dudley replaced Geithner as President of the NY Fed.  He was Chief Economist and Advisory Director at Goldman from 1986 to 2007.  Looks like Republicans and Democrats both love Goldman once they enter the Beltway.

Right before a Presidential election that didn’t really change its access to power, Goldman Sachs changed its status from an investment bank to a commercial bank holding company.  Why? “While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding,” GS head Lloyd C. Blankfein explained. Ah, “access”.  Nice to have it economically as well as politically.

As already noted, Goldman also got quick access to temporary liquidity and funding: $10 billion from the Paulson-Friedman-Jeffrey Treasury TARP Funds.  “Full prudential supervision”, on the other hand, was not so attractive, and it extended past borrowing cheap from the Fed to borrowing quick from the Treasury.  Turns out, the government was going to regulate bonuses for TARP fund recipients.  The horror!  The unmitigated moxie to tell the Masters of the Masters of the Universe they couldn’t pay themselves extra multi-millions at year’s end!

By March of 2009, Goldman Sachs had decided to pay back the money it received in October the year before. By July, it had agreed to buy back the government’s $10 billion “investment” for $11 billion.  Because GS had already sent DC $318 million in “preferred dividends”(on warrants included in the buy-back), the annualized interest for the American taxpayer was a whopping 23.15%.  Taxpayers have yet to benefit from this glorious return.  Funds are fungible.  AIG got $70 billion from the government and sent$13 billion of it to Goldman.  Goldman netted $11.682 billion in federal money, no strings attached.  Even before factoring in the value of the 200 doses of Swine Flu vaccines doled out to Goldman (surely it’s not employing child labor; does the firm have 200 pregnant women working for it?), we should be brimful of admiration for the firm’s audacity and financial savvy.  Its political connections probably also have something to do with the success of these maneuvers.

The door doesn’t go just one way, it revolves.  Goldman recently increased its staff of registered lobbyists by hiring more than 30 ex-government officials.  Prominent in their number is former House Majority Leader Richard Gephardt (D-Mo.).

Goldman Sachs not only invests with revolving doors, it also invests in cold cash.  Over the last 30 years, Goldman and its employees have expended more than $43 million on lobbying and campaign contributions, and employee contributions of $980,945 to Obama’s presidential campaign were the most generous of any corporation.  It looks like Goldman is getting most generous returns on both kinds of its investment in government.

A month after paying back billions of bailout money, with taxpayer benefits of double-digit interest, Goldman announced that it had earmarked  $11.4 billion — so far — to reward its employees.   The press release noted that these employees were so productive that Goldman had raked in the highest quarterly returns in its 140-year history — that aforementioned $3.44 billion in profits.  Three years ago, under Republican regnum, more than 50 Goldmanites earned more that $20 million each.  In 2007, CEO Lloyd Blankfein was rewarded $600,000 as a base salary, topped by a bonus of $26.8 million in cash and  $41 million in stock and stock options. Even before you add Blankfein’s other sources of income to his tax return, say from previous rewards in stock, Cheney’s remuneration from Halliburton looks like chump change compared to these riches.

“I find [the bonuses] disconcerting,” the NYT quotes Lucian A. Bebchuk, a law professor at Harvard. “My main concern is that it seems to be a return to some of the flawed short-term compensation structures that played an important role in the run-up to the financial crisis.”  My main concern is how close 11.4 is to 11.682.  In percentage terms, the rewards from bailout funds are less than 1.2% higher than the proposed bonuses. After netting out networking expenses, they may be equal. My concern is little allayed by chanting “funds are fungible” one more time.

Do conflicts of interest make Goldman Sachthe new Halliburton?  No.  It may be even worse.  From Halliburton we at least got services, like housing, transport, food and postal services for our troops. Admittedly, the electrical wiring was lousy, dangerous and even fatal. We may have been overcharged, and some of the water may have been contaminated and the food sub-standard.  But we did get something.

What have we gotten from Goldman Sachs?  A privately run stimulus package that, au moins, will help the Financial Capital of the World balance its budget with taxes on those big bonuses.  Perhaps the jury’s still out on Who’s the Biggest Who. It’s hard to get regulators who know the field without recruiting them from the field – particularly in matters as recondite as High Finance.  Maybe the government employees with pedigrees from Goldman are working with impartial vigor to enhance the public weal.  If we cut Goldman and its alumni this slack, we should also be willing to acknowledge that Halliburton/KBR may have been the best of all possible contractors in Iraq.