More miscellany

Endeavour

As I exited the grocery store just before noon today I noticed a bunch of people at their grocery carts pointing up.  A jumbo jet was flying directly overhead with the Endeavour riding piggyback.

Space shuttle Endeavour flew over Tucson on Thursday in honor of former Congresswoman Gabrielle Giffords and her astronaut husband before continuing its trek west to retirement in a Los Angeles museum.

 The West Campus

The west-side campus of Pima Community College opened in 1970, a paean to the architectural style of Brutalism.  (This from Wikipedia…)

Brutalist architecture is a style of architecture which flourished from the 1950s to the mid 1970s, spawned from the modernist architectural movement. Examples are typically very linear, fortresslike and blockish, often with a predominance of concrete construction. Initially the style came about for government buildings, low-rent housing and shopping centers in order to create functional structures at a low cost, but eventually designers adopted the look for other uses such as college buildings.

The environment is sterile, at least where the buildings are at the West Campus.  (Of the 267 acres, most is untouched desert.)  One day this week I noticed a melon rind at the side of the grand staircase (my photo, shown).  Not a bug or bird (not even a pigeon!) on it.  Two days later, the rind cleaned up by Maintenance, a dead grasshopper.  Not a bird to take it.

The next day a tiny lizard, about 4”, scurried across the stairs to a section planted in cactus.  What will it eat?  Unless it continues scurrying past the buildings to the desert, it’ll starve.  I’ll bet the place has been heavily sprayed by insecticide, poisoning all in its purview.

Peter D. Keirnan III

Peter Keirman has piqued my interest.  First, I noticed, a month ago in the Sunday NY Times Style section, a photo of his house in the Newport Evening Hours in addition to a photo of David B. Ford’s house.  Note that Kiernan is a former managing director of Goldman Sachs, and Ford a retired partner in Goldman Sachs.

What had been Goldman’s part in the subprime mortgage crisis?  I couldn’t remember.  These guys are (understatedly) pretty rich.  How did the crisis affect them?

It brought to mind a book I read a year or so ago, The Big Short, by Michael Lewis, which was #1 on the New York Times bestseller list at some point.  It was a lot to slog through for someone not interested in finance but very good!

…a 2010 non-fiction book about the build-up of the housing and credit bubble during the 2000s. It describes several of the key players in the creation of the credit default swap market that sought to bet against the collateralized debt obligation bubble and thus ended up profiting from the financial crisis of 2007–2010.

Anyway, back to Goldman Sachs.  The following from Wikipedia. It’s a lot to read and really too much to digest, like how this rich bank borrowed $782 billion from the Feds while many of the 99% were being ousted from their jobs and houses:

Actions in the 2007–2008 subprime mortgage crisis

During the 2007 subprime mortgage crisis, Goldman was able to profit from the collapse in subprime mortgage bonds in the summer of 2007 by short-selling subprime mortgage-backed securities. Two Goldman traders… are credited with bearing responsibility for the firm’s large profits during America’s sub-prime mortgage crisis. The pair, members of Goldman’s structured products group in New York, made a profit of $4 billion by “betting” on a collapse in the sub-prime market, and shorting mortgage-related securities. By summer of 2007, they persuaded colleagues to see their point of view and talked around skeptical risk management executives.  The firm initially avoided large subprime writedowns, and achieved a net profit due to significant losses on non-prime securitized loans being offset by gains on short mortgage positions. Its sizable profits made during the initial subprime mortgage crisis led the New York Times to proclaim that Goldman Sachs is without peer in the world of finance. The firm’s viability was later called into question as the crisis intensified in September 2008…

On September 23, 2008, Berkshire Hathaway agreed to purchase $5 billion in Goldman’s preferred stock, and also received warrants to buy another $5 billion in Goldman’s common stock, exercisable for a five-year term. Goldman also received a $10 billion preferred stock investment from the U.S. Treasury in October 2008, as part of the Troubled Asset Relief Program (TARP).

Andrew Cuomo, then Attorney General of New York, questioned Goldman’s decision to pay 953 employees bonuses of at least $1 million each after it received TARP funds in 2008

In June 2009, Goldman Sachs repaid the U.S. Treasury’s TARP investment, with 23% interest … In December 2009, Goldman announced their top 30 executives will be paid year-end bonuses in restricted stock, with clawback provisions, that must go unsold for five years.

Use of Federal Reserve’s Emergency Liquidity Programs

During the 2008 Financial Crisis, the Federal Reserve introduced a number of short-term credit and liquidity facilities to help stabilize markets. Some of the transactions under these facilities provided liquidity to institutions whose disorderly failure could have severely stressed an already fragile financial system.

Goldman Sachs was one of the heaviest users of these loan facilities, taking out numerous loans from March, 2008 – April, 2009. The Primary Dealer Credit Facility (PDCF), the first Fed facility ever to provide overnight loans to investment banks, loaned Goldman Sachs a total of $589 billion against collateral such as corporate market instruments and mortgage-backed securities.  The Term Securities Lending Facility (TSLF), which allows primary dealers to borrow liquid Treasury securities for one month in exchange for less liquid collateral, loaned Goldman Sachs a total of $193 billion.

Goldman Sachs’s borrowings totaled $782 billion in hundreds of transactions over these months.  This number is a total of all transactions over time and not the outstanding loan balance. The loans have been fully repaid in accordance with the terms of the facilities.

July 15, 2010, 4:17 pm

Goldman Sachs has agreed to pay $550 million to the Securities and Exchange Commission, one of the largest penalties ever paid by a Wall Street firm, to settle charges of securities fraud linked to mortgage investments. 1

This was an interesting article on Goldman partners…

Retirement often conjures images of shuffleboard or fishing. But for most Goldman Sachs partners, it signals the start of another career.

When Goldman went public in May 1999, a group of 221 executives controlled the firm, with roughly 60 percent of the outstanding shares. Now, only 39 of the original partnership class remains, with others going to top jobs in finance, government and even sports, according to a study by The New York Times.

They reaped a windfall at the initial public offering, based on a previously unreported partnership document. John Thain, chief executive of the lender CIT Group, and John Thornton, a professor at Tsinghua University in China, each held approximately 1 percent of the firm prior to the market debut. Each of those stakes was worth roughly $165 million at the public offering, according to former partners…

David B. Ford  0.725%  1997 Executive Vice President and Managing Director retired 2003.  Partner, General Partner and Head of Fixed Income Sales, Managing Director and Co-Head of Global Asset Management Goldman , Sachs & Co.

Peter D. Kiernan III  0.425%  Peter Kiernan retired as managing director at Goldman Sachs in 2004.  Kiernan joined Goldman in 2000.2

So Ford got about $120M, Kiernan just over $70M.

Back to Kiernan.  (One thing I learned from programming computers – if you have a goto, you must have a return.)  Last Sunday the cover article in The New York Times Magazine, Anatomy of a Campus Coup3, went into how the President of the University of Virginia had been fired (and later reinstated).   See Kiernan on the top right?

Shortly after Sullivan’s removal, Peter Kiernan sent a mass e-mail disclosing that he had been consulted ahead of time and assuring the university that Dragas and Kington — both business-school alums — would be proceeding “with a focus on strategic dynamism.”

Well, the whole debacle was an interesting read.  Amazing what you can do (or can’t do) when you have hundreds of millions.  (To repeat, The rich are different than you and me – Fitzgerald)

1http://dealbook.nytimes.com/2010/07/15/goldman-to-settle-with-s-e-c-for-550-million/

2http://dealbook.nytimes.com/2011/05/16/the-goldman-sachs-diaspora/

3http://www.nytimes.com/2012/09/16/magazine/teresa-sullivan-uva-ouster.html?pagewanted=2&hpw

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