The Goldman Sachs Conspiracy Theory

1. Bear Stearns The News: In March, Bear Stearns stock plummeted, and clients questioned the firms viability. J.P. Morgan, with government assistance, agreed to buy Bear for $10 a share. The facts: Rumors appeared in print that traders in Goldmans London unit tried to drive Bears stock down. The conspiracy theory: Goldman Sachs and other Wall Street firms have held a grudge against Bear since 1998 when the company refused to join in the $3.6 billion bailout of hedge fund Long-Term Capital Management. By spreading fear about Bear, Goldman stood to pick up some lucrative new clients. (Goldmans response: We went out of our way to be supportive of Bear Stearns.

2. Merrill Lynch Sale The news: On the weekend that the government allowed Lehman to fail, Merrill Lynch, led by C.E.O. John Thain, sold itself to Bank of America for a tidy premium. Days later, the Britain-based bank Barclays agreed to buy Lehmans core assets for pennies, wiping out Lehmans shareholders. The facts: Thain was a frequent adviser to Tim Geithner, who was then president of the New York Fed. Thain also worked as Goldmans co-president under Paulson. The conspiracy theory: To protect Thains sterling reputation (and Goldmans too), Geithner and Paulson urged him to find a buyer immediately. If he hadnt, Merrill would have followed Lehman Brothers into oblivion.

3. A.I.G. Bailout The news: Officials agreed to extend A.I.G. an $85 billion loanlater upped to $123 billionto prevent its collapse. Goldman C.E.O. Lloyd Blankfein was (albeit briefly) the only investment-banking chief at a key meeting to discuss the deal. The facts: Paulson installed Goldman vice chairman Ed Liddy as A.I.G.s new C.E.O. The conspiracy theory: Had the insurance giant failed, Goldman would have lost big. Its said to have $20 billion in A.I.G. exposure. (Goldman says any exposure is offset by collateral and hedges.) Liddy was put in to protect Goldmans interests. When asked why A.I.G. was bailed out but not Lehman, Dick Fuld, Lehmans C.E.O., told Congress, Until the day they put me in the ground, I will wonder.

4. Billions for the Banks The news: The government injected $250 billion into U.S. banks as part of its bailout plan. The facts: Before its collapse, Lehman Brothers was looking for a capital infusion of roughly $6 billion. Unable to raise the money, the company filed for bankruptcy. The governments bailout plan, which included $10 billion for Goldman, came in October, just three weeks after Lehman was allowed to fail. The conspiracy theory: The government let Lehman go under to eliminate one of Goldmans biggest competitors. Though Goldmans write-downs were tiny relative to those of its competitors, it was nonetheless granted the $10 billion in the bailout to preserve its advantage.

5. Bank Holding Companies

The news: In September, with markets swooning, Goldman Sachs applied to become a bank holding company. The Federal Reserve quickly approved the move, allowing Goldman (and Morgan Stanley, which had also applied for the change) to take deposits backed by the F.D.I.C. The facts: Over the summer, Lehman C.E.O. Dick Fuld considered converting Lehman to a bank holding company. After discussions with the Fed, Lehman didnt apply for the change. The conspiracy theory: Goldman was thrown a lifeline by its many friends in government. Said a former Lehman swaps trader: They were a lot more connected in government than Fuld was. At the end of the day, that cost Lehman.

6. Short-Selling Ban The news: On September 19, S.E.C. Commissioner Christopher Cox announced a monthlong ban on the short-selling of stocks in 799 financial companies. The facts: Executives at Bear and Lehman had long complained to regulators about traders irresponsibly shorting their stocks and stoking investor panic. The S.E.C. shortselling ban was implemented after both firms failed and Goldmans stock dropped 20 percent over three days. The conspiracy theory: When Goldmans competitors felt pressure from the shorts, regulators acted timidly. Once the short-sellers turned their attention to Goldman, the company used its influence to push through a ban.

7. Rescuing Citigroup The news: In November, after Citigroups stock dropped more than 60 percent in one week, the government injected $20 billion into the companyadding to the $25 billion it had already committed. The government also agreed to backstop the companys losses once they surpass $29 billion.

The facts: Citigroup adviser and Goldman alum Robert Rubin mentored Geithner at Treasury and was one of Paulsons contemporaries at Goldman. The conspiracy theory: Geithner and Paulson came to the rescue of their friend. The bailout preserved Rubins big gighe made more than $62 million from 2004 to 2007despite claims he championed some of Citis riskiest strategies.

8. The Obama Presidency The news: Barack Obama was elected the 44th president of the United States. The facts: As a group, Goldman Sachs employees were among the largest donors to the Obama presidential campaign, giving more than $884,000. Former Goldman hotshots, including Rubin and New Jersey Governor Jon Corzine, were reportedly candidates to become Obamas Treasury secretary. Geithner was eventually picked. The conspiracy theory: Obamas victory and Geithners appointment are the completion of Goldmans meticulously crafted plan to become a superpower. The firm now has the clout to impose its will on the financial marketsand the world.