Goldman Sachs may be the most hated firm on Wall Street, vilified by protesters and banking rivals alike, but one reason the firm has so many detractors is envy of its uncanny ability to bet on winners.
This year, the firm appears to be betting on Mitt Romney.
Keep in mind Goldman’s track record. Well before the financial crisis, it successfully bet against all that toxic subprime-mortgage debt, a move that spared it the worst ravages of the banking collapse in 2008. Around the same time, it also rolled the dice on a US senator from Illinois named Barack Obama winning the Democratic nomination and then the presidency.
Which makes the firm’s bet this election cycle all the more interesting.
“Goldman Sachs will not support Obama,” the firm’s CEO, Lloyd Blankfein, muttered at a recent dinner.
It was a meeting with the CEO of Blackrock, Larry Fink, himself another of Wall Street’s top Obama boosters back in 2008. But “Larry is looking for someone to support this time,” a friend of Fink told me.
Blankfein has apparently found his pick. According to people who know him, Blankfein’s bet is that Romney will win the Republican nomination fairly early, putting him in a decent position to win the presidency — and in office does his best to water down some of the more insane aspects of the Dodd-Frank financial-reform law.
Some caveats: Romney barely won the Iowa caucuses and still faces much conservative skepticism about his various flirtations with big government as Massachusetts governor. Goldman still has many committed Democrats, and Wall Street support can be fickle. Blankfein might well reverse his bet if Obama takes a commanding lead in the polls.
But with the polls fairly even, the firm so far seems to be betting big that the GOP base will conclude that Romney has the best chance of winning over independents and beating the president in November. That would allow a reversal of Obama’s most leftist policies — including financial reform, which threatens to strangle Goldman and all the big banks while doing little to address the core problems that led to the 2008 collapse.
What makes Goldman’s move to the right so striking is just how far to the left it was in 2008. The Goldman community gave more than a $1 million to the 2008 Obama campaign, bested only by donors tied to the ultraliberal University of California. But the latest contribution records (through the end of September) show that Goldman-linked givers barely crack the top 20 of Obama donors, with a little more than $50,000 toward his 2012 re-election effort.
By contrast, Goldman-linked donors are Romney’s leading source of corporate campaign cash, spending $367,200 on his 2012 effort so far. That’s nearly $127,000 more than the firm put up for 2008 GOP nominee John McCain.
Not that Goldman has suddenly become a hotbed of Tea Party conservatism. Its beef with Obama is focused almost entirely on Dodd-Frank’s impact on its bottom line.
The law — passed by the hyper-Democratic Congress in 2010 — is costing Wall Street billions of dollars, with the real pain yet to be felt. It’s likely to force the big banks out of profitable lines of business that had little or nothing to do with the 2008 collapse. In particular, depending on how the law’s enforcement regulations are written, firms may no longer be able to trade securities for their clients — erasing tens of billions of dollars in earnings.
That, I’m told, is the major reason Goldman so far this year is also backing Republicans for House and Senate seats, after handing most of its 2008 money to Democrats.
Of course, the GOP race is far from over, and having Goldman as a big backer may not be the best thing for Romney. The firm has suffered massively bad publicity these last three years over its business practices during the financial crisis. Blankfein himself is still under investigation for potentially misleading a Senate committee investigating the firm’s behavior, and the Obama smear machine is already set to unload on Romney for his own Wall Street record as a takeover specialist at Bain Capital.
But while some finger pointing at Goldman was warranted, much of it wasn’t; it was far from the most reckless risk-taker among the surviving firms. More important, its ability to see the financial crisis coming, and to correctly assess Obama’s potential, should stand out for anyone looking to handicap the 2012 elections and Mitt Romney’s chances of becoming president.
Charles Gasparino is a Fox Business Network senior correspondent.