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Goldman's top alumni wield White House clout

Section: Daily Dispatches

By Stephanie Kirchgaessner and Ben White
Financial Times, London
Sunday, December 3, 2006

America's corporate elite has long upheld a tradition of joining Washington's corridors of power for a new career. JPMorgan executives gave counsel to President Woodrow Wilson during the first world war. President John F. Kennedy asked Robert McNamara, a war veteran who had risen to the top ranks of Ford, to become secretary of defence in 1960.

But the appointment last week of Goldman Sachs' William Dudley to head the Federal Reserve Bank of New York markets group raised to an unprecedented level the number of top positions in public service that former executives from any one company have held during a White House administration.

Today, former Goldman Sachs executives control or influence the oversight of key aspects of the US financial system and hold prominent positions throughout the Bush White House.

They include: Hank Paulson, the Treasury secretary and former Goldman chief executive; Reuben Jeffrey, a former Goldman managing partner who is the chiefregulator of commodity futures and options trading; Joshua Bolten, White House chief of staff who served as a Goldman executive director; Robert Steel, the former Goldman vice-chairman who advises Mr Paulson on domestic finance; and Rand Fort, the ex-Goldman director of global security who advises Condeleezza Rice, the secretary of state.

The composition of President George W. Bush's working group on financial markets demonstrates the clout of the company's former executives on policy.

The panel -- which is composed of Mr Paulson, Mr Jeffrey, Ben Bernanke, the Rederal Reserve chairman, and Christopher Cox, chairman of the Securities and Exchange Commission -- would be Mr Bush's first port of call in the event of a financial crisis.

Mr Dudley would also play a crucial role in stabilising the markets in the event of a meltdown, as one of his predecessors, Peter Fisher, did following the near collapse of Long-Term Capital Management, the hedge fund. The former executives will also be influential in issues ranging from the regulation of Fannie Mae and Freddie Mac, the housing giants, to tax policy, to how heavily the energy markets should be regulated; all issues that Goldman Sachs lobbies heavily on in Washington.

"I don't think anybody else even comes close" to holding the number of top positions in Washington, says Charles Geisst, a Wall Street historian and professor at Manhattan College, who points out that Goldman's reach is even more impressive because it comes at a time when there is no single dominant bank or brokerage in the US.

Unlike other companies that are targeted for being too cozy with the White House, neither Mr Bush nor Goldman have been criticised by Democrats for holding too many powerful jobs, in part because the investment bank also has deep ties to Democrats.

Goldman represented the biggest single donor base to the Democratic party ahead of this year's mid-term elections, according to the Center for Responsive Politics, and at least two Democratic political heavyweights Jon Corzine, the New Jersey governor, and Robert Rubin, the former Treasury secretary, are Goldman alumni.

Goldman says it is proud of its long record of public service, but does the company yield too much power in Washington?

Alex Knott, political editor at the Center for Public Integiry, says that while there is no doubt that former Goldman executives have the experience to hold their posts, they also have close ties to a company that benefits from their public policy decisions.

"It does create a potential conflict of interest because so much regulation is doled out by administrators who could be looking out for their former employees and co-workers," he says.

Whatever potential conflict of interest may exist, however, neither Mr Knott nor executives at competing banks have substantive complaints about the influx of former Goldman leaders.

"I'd love to point out a smoking gun in their direction but I can't," said one senior executive at a rival bank. "They've created this tradition of public service and it does accrue benefit to the Goldman brand. That's not a conflict. It's just what it is. It's something people are envious of."

Orin Kramer, chairman of the New Jersey State Investment Council and a close friend of Mr Corzine, says life can sometimes be made more difficult for Goldman because of its ties to public life. Mr Paulson, for example, has vowed to recuse himself from any matter that pertains specifically to Goldman over his tenure. Last month he removed himself from the national security review of Lucent's merger with Alcatel, which was being advised by Goldman.

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