In Goldman, Sachs We Trust

It was recently announced that Goldman Sachs ($121.19 - 4/15/09) initiated a $5 billion public offering of common stock in order to pay back the money borrowed in the TARP program. Once again, the pundits declare Goldman Sachs: “Brilliant, Wonderful, Masterful, The Best of Wall Street, Geniuses, Perfect Timing.” Wait a minute. When the same adjectives were used to describe Goldman Sachs on July 26th 1929, they were issuing a trust called the Shenandoah Group, for over $102 million. Then on August 20th of that same year, they issued a trust called The Blue Ridge Corporation for $142 million. On both issues, insiders were given a substantial discount to what the American public would ultimately pay for the stock. Slick trick.

If you could have looked inside the Shenandoah Group, you would have found the same board of directors as the Blue Ridge Corporation. Also, inside that same trust, the Shenandoah holdings were primarily Blue Ridge stock. Inside the Blue Ridge Corporation, the holdings were, you guessed it, the Shenandoah Group stock. In addition, it was all wrapped up in a third trust called the Goldman Sachs Trading Corporation. In hearings of April to June of 1932, the following occurred:

Senator Couzens: Did Goldman Sachs and Company organize the Goldman Sachs Trading Corporation?
Mr. Sachs: Yes, sir.
Senator Couzens: And it sold its stock to the public?
Mr. Sachs: A portion of it. The firms invested originally in 10% of the entire issue for the sum of $10 million.
Senator Couzens: And the other 90% was sold to the public?
Mr. Sachs: Yes, sir.
Senator Couzens: At what price?
Mr. Sachs: At $104. That was the old stock. The stock was split two-for-one. (Meaning $208.)
Senator Couzens: And what is the price of the stock now?
Mr. Sachs: Approximately $1.75.

Brilliant. Wonderful. Masterful. The best of Wall Street. Geniuses. Perfect timing.

Buyer beware. I’ve said it before, and I’ll say it again. Those who don’t learn from history are doomed to repeat it.

Till next time,

Bill




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