Where Angels Prey

Where Angels Prey is a novel by Ramesh S Arunachalam. Please refer to www.whereangelsprey.com for more information

Sunday, March 27, 2016

Electoral & Political Governance, Transparency and Financial Regulation: Why Potential Law-Makers Like Hillary Clinton Need to Release Their Wall-Street Speeches Urgently?

Ramesh S Arunachalam

Transparency and accountability in public life and electoral politics are at the root of a healthy democracy and they call for sharing of information (with the electorate) in a clear manner by all potential law makers[i] – current as well as future ones. That is precisely why Hillary Clinton needs to release her Wall-Street speeches immediately. Without a doubt, she owes it to the American people[ii] on what she told Wall-Street during her speeches because it has HUGE ramifications for the future of financial regulation in America (including that of Wall-Street firms), which, in turn will have a significant bearing on what happens in the global economy – in reality, I don’t think that any of us want another financial crisis[iii] because of Wall-Street. Period!

And it goes without saying that much water has flown under the bridge regarding Wall-Street over the years and the regulation and orderly growth of Wall-Street firms (including investment banks, commercial banks, financial conglomerates etc) indeed has a very important stake in the American Presidency with gigantic implications for the global economy.  And financial regulation - especially regulation of Wall-Street - has therefore become as important a topic as foreign policy, jobs, homeland security, terrorism (and the like) in the American Presidential election. Therefore, if any of the candidates have delivered speeches at Wall-Street, be it Hillary Clinton or Bernie Sanders or Donald Trump or Ted Cruz or John Kasich, they better provide full and complete disclosure on these paid/unpaid speeches that they have made to Wall-Street Firms as well as other Corporations[iv]! This is an imperative from the point of view of ‘good’ electoral and political governance, which calls for minimum standards in transparency and accountability.

Please see what the Financial Crisis Inquiry Commission (FCIC) Final Report (Dated January 2011, http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf) says about the 2008 Financial Crisis and its causes (including the role of Wall Street firms), and then decide on whether or not, Hillary Clinton, who is fighting for the Democratic Presidential Nomination, is CORRECT in refusing to release speeches made by her at Wall-Street firms (like Goldman Sachs etc)…I rest my case…you can see multiple references to Goldman Sachs and other Wall-Street firms in the FCIC report as it dwells on the causes that led to the Financial Crisis of 2008.

I quote from the FCIC report hereafter which identifies several key aspects that caused the 2008 financial crisis.

1st Cause: The first key point from the FCIC report is given below:

a)    “The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble. …

The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not. The record of our examination is replete with evidence of other failures: financial institutions made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective; firms depended on tens of billions of dollars of borrowing that had to be renewed each and every night, secured by subprime mortgage securities; and major firms and investors blindly relied on credit rating agencies as their arbiters of risk. What else could one expect on a highway where there were neither speed limits nor neatly painted lines?” (FCIC Report)

The reader will note the emphasis on the ‘pivotal failure’ of the regulator – the Federal Reserve. The reader will also note that the FCIC report mentions the fact that “financial institutions made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective; firms depended on tens of billions of dollars of borrowing that had to be renewed each and every night, secured by subprime mortgage securities; and major firms and investors blindly relied on credit rating agencies as their arbiters of risk!”. And surely, as the FCIC report argues in the next point (given below), law/policy makers and regulators did have a huge say in creating such a “highway where there were neither speed limits nor neatly painted lines” and where reckless driving was the norm (rather than the exception).

Given the above, you will now understand why it is important that Politicians (current as well as future law/policy makers) - who participate in the American electoral process and especially, for the position of the President of the Unites States - must come clean on their relationships with Wall-Street firms. There can be no two doubts about!

2nd Cause: OK, let us move to the next key point identified by FCIC.

b)    “We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow banking system and over-the-counter derivatives markets. In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor. ...

Changes in the regulatory system occurred in many instances as financial markets evolved. But as the report will show, the financial industry itself played a key role in weakening regulatory constraints on institutions, markets, and products. It did not surprise the Commission that an industry of such wealth and power would exert pressure on policy makers and regulators. From 1999 to 2008 the financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than $1 billion in campaign contributions. What troubled us was the extent to which the nation was deprived of the necessary strength and independence of the oversight necessary to safeguard financial stability.” (FCIC Report)

Please note the comment on failure of financial regulation and supervision in causing the crisis as well as the reference to lobbying expenses, campaign contributions and the power and wealth of Wall-Street to ‘exert pressure on policy makers and regulators’. For a moment I thought that it was Bernie Sanders who had written this report but I was sadly mistaken! These words appear in the final report of the FCIC, the Statutory Commission that inquired into the Financial Crisis of 2008. Now, tell me, whether, as an American, you feel comfortable when a potential law/policy maker talks of reigning in Wall-Street but refuses to release the paid speeches that she made to a key Wall-Street firm like Goldman Sachs, which has been repeatedly cited in the FCIC report! Again, I rest my case and it is for you the people to decide…

3rd Cause: Alright, let us move on to the next point cited by FCIC and it is about self-regulation - an idea sold by large Wall-Street Firms, Financial Conglomerates, Banks and Corporations to Law/Policy Makers and Regulators, who readily bought this idea…and faced the consequences via the financial crisis of 2008...

c)     “We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis. There was a view that instincts for self-preservation inside major financial firms would shield them from fatal risk-taking without the need for a steady regulatory hand, which, the firms argued, would stifle innovation. Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding. In many respects, this reflected a fundamental change in these institutions, particularly the large investment banks and bank holding companies, which focused their activities increasingly on risky trading activities that produced hefty profits. They took on enormous exposures in acquiring and supporting subprime lenders and creating, packaging, repackaging, and selling trillions of dollars in mortgage-related securities, including synthetic financial products. Like Icarus[v], they never feared flying ever closer to the sun.

Many of these institutions grew aggressively through poorly executed acquisition and integration strategies that made effective management more challenging. The CEO of Citigroup told the Commission that a $40 billion position in highly rated mortgage securities would ‘not in any way have excited my attention,’ and the co-head of Citigroup’s investment bank said he spent “a small fraction of 1%” of his time on those securities. In this instance, too big to fail meant too big to manage.

Financial institutions and credit rating agencies embraced mathematical models as reliable predictors of risks, replacing judgment in too many instances. Too often, risk management became risk justification.

Compensation systemsdesigned in an environment of cheap money, intense competition, and light regulation—too often rewarded the quick deal, the short-term gain—without proper consideration of long-term consequences. Often, those systems encouraged the big bet—where the payoff on the upside could be huge and the downside limited. This was the case up and down the line—from the corporate boardroom to the mortgage broker on the street.

Our examination revealed stunning instances of governance breakdowns and irresponsibility. You will read, among other things, about AIG senior management’s ignorance of the terms and risks of the company’s $79 billion derivatives exposure to mortgage-related securities; Fannie Mae’s quest for bigger market share, profits, and bonuses, which led it to ramp up its exposure to risky loans and securities as the housing market was peaking; and the costly surprise when Merrill Lynch’s top management realized that the company held $ 55 billion in “super-senior” and supposedly “super-safe” mortgage-related securities that resulted in billions of dollars in losses.” (FCIC Report)

Yet the law/policy makers and regulators swore by self-regulation. Why were they so dogmatic and blind sighted? In my humble opinion, self-regulation is an oxy-moron and has never worked. It pushes people to fly like Icarus who did not fear flying closer to the sun and simply perished. Now, this again, is a clear failure on the part of policy and law makers who were convinced by these large Wall-Street Firms, Financial Conglomerates, Banks and Corporations to bring in the paradigm of self-regulation as a key component of the regulatory and supervisory process! Again, as before, the cost of this decision was very high and it resulted in the financial crisis of 2008, whose impact, we are still feeling today...

4th, 5th and 6th Causes: The FCIC report talks of three more critical aspects that led to the financial crisis of 2008 and each of these are highlighted below:

d)    “We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
Clearly, this vulnerability was related to failures of corporate governance and regulation, but it is significant enough by itself to warrant our attention here. In the years leading up to the crisis, too many financial institutions, as well as too many households, borrowed to the hilt, leaving them vulnerable to financial distress or ruin if the value of their investments declined even modestly. For example, as of 2007, the five major investment banks—Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley—were operating with extraordinarily thin capital. By one measure, their leverage ratios were as high as 40 to 1, meaning for every $40 in assets, there was only $1 in capital to cover losses. Less than a 3% drop in asset values could wipe out a firm. To make matters worse, much of their borrowing was short-term, in the overnight market—meaning the borrowing had to be renewed each and every day. For example, at the end of 2007, Bear Stearns had $11.8 billion in equity and $383.6 billion in liabilities and was borrowing as much as $70 billion in the overnight market. It was the equivalent of a small business with $50,000 in equity borrowing $1.6 million, with $296,750 of that due each and every day. One can’t really ask ‘What were they thinking?’ when it seems that too many of them were thinking alike.” (FCIC Report)

Anyone with financial sense will argue that such leverage is ridiculous. Yet it was allowed and consciously by the powers that be. Where were regulators and law/policy makers? I just don’t know!

e)     “We conclude over-the-counter derivatives contributed significantly to this crisis. The enactment of legislation in 2000 to ban the regulation by both the federal and state governments of over-the-counter (OTC) derivatives was a key turning point in the march toward the financial crisis. …

OTC derivatives contributed to the crisis in three significant ways. First, one type of derivative—credit default swaps (CDS)—fuelled the mortgage securitization pipeline. CDS were sold to investors to protect against the default or decline in value of mortgage-related securities backed by risky loans. Companies sold protection—to the tune of $79 billion, in AIG’s case—to investors in these newfangled mortgage securities, helping to launch and expand the market and, in turn, to further fuel the housing bubble.

Second, CDS were essential to the creation of synthetic CDOs. These synthetic CDOs were merely bets on the performance of real mortgage-related securities. They amplified the losses from the collapse of the housing bubble by allowing multiple bets on the same securities and helped spread them throughout the financial system.

Goldman Sachs alone packaged and sold $73 billion in synthetic CDOs from July 1, 2004, to May 31, 2007. Synthetic CDOs created by Goldman referenced more than 3,400 mortgage securities, and 610 of them were referenced at least twice. This is apart from how many times these securities may have been referenced in synthetic CDOs created by other firms. …

While financial institutions surveyed by the FCIC said they do not track revenues and profits generated by their derivatives operations, some firms did provide estimates. For example, Goldman Sachs estimated that between 25% and 35% of its revenues from 2006 through 2009 were generated by derivatives, including 70% to 75% of the firm’s commodities business, and half or more of its interest rate and currencies business. From May 2007 through November 2008, $133 billion, or 86%, of the $155 billion of trades made by Goldman’s mortgage department were derivative transactions.[vi] (FCIC Report)

Here you go again. Another example, where regulation was banned by LEGISLATION and as the FCIC report argues and I quote, “the enactment of legislation in 2000 to ban the regulation by both the federal and state governments of over-the-counter (OTC) derivatives was a key turning point in the march toward the financial crisis”.

Why on earth would the Federal Government ban regulation with a legislation and purchase a crisis? Good lord, it beats me…and I simply don’t understand why this happened? Was it lobbying, friendly relationships of policy/law makers with Wall-Street firms, paid speeches, and/or campaign donations that did the trick? I am not sure but I simply don’t fathom why this banning of regulation happened in the year 2000 (Y2K)! Now, you will understand why people like Bernie Sanders and others are asking for Hillary Clinton’s paid speeches to be released and why I fully support this demand!

f)      “Removing barriers helped consolidate the banking industry. Between 1990 and 2005, 74 “megamergers” occurred involving banks with assets of more than $10 billion each. Meanwhile the 10 largest jumped from owning 25% of the industry’s assets to 55%. From 1998 to 2007, the combined assets of the five largest U.S. banks—Bank of America, Citigroup, JP Morgan, Wachovia, and Wells Fargo—more than tripled, from $2.2 trillion to $6.8 trillion.[vii] And investment banks were growing bigger, too. Smith Barney acquired Shearson in 1993 and Salomon Brothers in 1997, while Paine Webber purchased Kidder, Peabody in 1995. Two years later, Morgan Stanley merged with Dean Witter, and Bankers Trust purchased Alex. Brown & Sons. The assets of the five largest investment banks—Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns—quadrupled, from $1 trillion in 1998 to $4 trillion in 2007.[viii]

In the spring of 1996, after years of opposing repeal of Glass-Steagall, the Securities Industry Association—the trade organization of Wall Street firms such as Goldman Sachs and Merrill Lynch—changed course. Because restrictions on banks had been slowly removed during the previous decade, banks already had beachheads in securities and insurance. Despite numerous lawsuits against the Fed and the OCC, securities firms and insurance companies could not stop this piecemeal process of deregulation through agency rulings.[ix] Edward Yingling, the CEO of the American Bankers Association (a lobbying organization), said, ‘Because we had knocked so many holes in the walls separating commercial and investment banking and insurance, we were able to aggressively enter their businesses—in some cases more aggressively than they could enter ours. So first the securities industry, then the insurance companies, and finally the agents came over and said let’s negotiate a deal and work together.’[x]

The new regime encouraged growth and consolidation within and across banking, securities, and insurance. The bank-centered financial holding companies such as Citigroup, JP Morgan, and Bank of America could compete directly with the “big five” investment banks—Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns—in securitization, stock and bond underwriting, loan syndication, and trading in over-the-counter (OTC) derivatives. The biggest bank holding companies became major players in investment banking. The strategies of the largest commercial banks and their holding companies came to more closely resemble the strategies of investment banks. Each had advantages: commercial banks enjoyed greater access to insured deposits, and the investment banks enjoyed less regulation. Both prospered from the late 1990s until the outbreak of the financial crisis in 2007. However, Greenspan’s “spare tire” that had helped make the system less vulnerable would be gone when the financial crisis emerged—all the wheels of the system would be spinning on the same axle.” (FCIC Report)

Again, the above represents a classic case where in the name of innovation and consolidation, regulatory safeguards were removed, resulting in the system being more vulnerable when the financial crisis actually emerged (as all the wheels of the system were INDEED spinning on the same axle, which eventually broke). Please note that as the FCI report argues very clearly, the financial crisis was essentially caused by a regulatory and policy failure that occurred because regulation and supervision were either lax and/or regulatory safeguards had been removed through lobbying, legislation and the like. We simply cannot afford more of this in the future. That is why, in the backdrop of the 2008 financial crisis (and its aftermath) and the role played by Wall-Street (including investment banks, commercial banks, financial conglomerates etc) in creating and sustaining this crisis, we simply cannot have “Potential Presidential Nominees” cosy up to Wall-Street and refuse to release transcripts of their (paid) speeches! Sorry but that is unacceptable and is not good electoral governance in any form or manner. Period!

7th Cause: Let us move further on and get to the governance of compensation which played a very important role in the 2008 financial crisis. Indeed, compensation is one factor among many that contributed to the financial crisis of 2008 in the United States and elsewhere! And the FCIC report has also mentioned the same and this is quoted below:

g)    “Both before and after going public, investment banks typically paid out half their revenues in compensation. For example, Goldman Sachs spent between 44% and 49% a year between 2005 and 2008, when Morgan Stanley allotted between 46% and 59%. Merrill paid out similar percentages in 2005 and 2006, but gave 141% in 2007—a year it suffered dramatic losses.[xi]

As the scale, revenue, and profitability of the firms grew, compensation packages soared for senior executives and other key employees. John Gutfreund, reported to be the highest-paid executive on Wall Street in the late 1980s, received $3.2 million in 1986 as CEO of Salomon Brothers.[xii] Stanley O’Neal’s package was worth more than $91 million in 2006, the last full year he was CEO of Merrill Lynch.[xiii] In 2007, Lloyd Blankfein, CEO at Goldman Sachs, received $68.5 million;[xiv] Richard Fuld, CEO of Lehman Brothers, and Jamie Dimon, CEO of JPMorgan Chase, received about $34 million and $28 million, respectively.[xv] That year Wall Street paid workers in New York roughly $33 billion in year-end bonuses alone.[xvi] Total compensation for the major U.S. banks and securities firms was estimated at $137 billion.[xvii](FCIC Report)

In effect, what was happening was that, in all these firms, the focus was on the short-term performance, incentives, and compensation when, in reality the risks (which existed) were mostly, medium and/or long-term. And of course, the regulator and law/policy makers sat and watched as compensation soared way beyond acceptable levels and firms started paying as high as 50% of their revenues in compensation. Did not the regulators and policy/law makers find it strange that: a) Goldman Sachs spent between 44% and 49% of its revenue a year on compensation (during the years 2005 to 2008); b) Morgan Stanley allotted between 46% and 59%; and c) Merrill paid out similar percentages in 2005 and 2006, and more importantly, gave as high as 141% in 2007 (a year it suffered dramatic losses). What, on earth, were the regulators and policy/law makers doing?

8th Cause: Basically, as the FCIC report correctly argues, a lot of this happened because conflicts of interest were at play and they were responsible for the financial crisis of 2008 in a big measure. While there are innumerable examples from the FCIC report that I could cite towards conflicts of interest that were responsible for the financial crisis of 2008, one very relevant example is given below:

h)    Another high profile example of conflict of interest in the recent years is the settlement that the SEC reached with Goldman Sachs, in which that firm paid $550 million to settle charges filed by the Commission, and acknowledged that disclosures made in marketing a subprime mortgage product contained incomplete information as they did not disclose the role of a hedge fund client who was taking the opposite side of the trade in the selection of the CDO.”[xviii] And I quote

“2. Goldman acknowledges that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure. (http://www.sec.gov/litigation/litreleases/2010/consent-pr2010-123.pdf , Page 2, point 3)”

Before I close this piece, I would like to quote the FCIC report one last time and I do so below:


Henry Paulson, the CEO of Goldman Sachs from 1999 until he became secretary of the Treasury in 2006 testified to the FCIC that by the time he became secretary many bad loans already had been issued—“most of the toothpaste was out of the tube”— and that “there really wasn’t the proper regulatory apparatus to deal with it.”[xix] Paulson provided examples: “Subprime mortgages went from accounting for 5 percent of total mortgages in 1994 to 20 percent by 2006. . . . Securitization separated originators from the risk of the products they originated.” The result, Paulson observed, “was a housing bubble that eventually burst in far more spectacular fashion than most previous bubbles.”[xx]

Under Paulson’s leadership, Goldman Sachs had played a central role in the creation and sale of mortgage securities. From 2004 through 2006, the company provided billions of dollars in loans to mortgage lenders; most went to the subprime lenders Ameriquest, Long Beach, Fremont, New Century, and Countrywide through warehouse lines of credit, often in the form of repos.[xxi] During the same period, Goldman acquired $ 53 billion of loans from these and other subprime loan originators, which it securitized and sold to investors.[xxii] From 2004 to 2006 Goldman issued 318 mortgage securitizations totalling $184 billion (about a quarter were subprime), and 63 CDOs totaling $32 billion; Goldman also issued 22 synthetic or hybrid CDOs with a face value of $35 billion between 2004 and June 2006.[xxiii]

To summarize, the FCIC report cites the following as among the key causes for the financial crisis of 2008: a) the lack of proper regulation and supervision; b) the lax and laissez-faire attitude of the regulators and law/policy makers (due to conflicts of interests); c) the reckless ride that many Wall-Street firms (including investment banks, commercial banks, financial conglomerates etc) took on a highway with no speed-breakers; d) the poor operational practices, weak financial condition and huge compensation packages at many of these Wall-Street firms (including investment banks, commercial banks, financial conglomerates etc); e) the conflicts of interest that were prevalent in the larger policy, business and political environment and so on.

Given all of this, ask yourself the question as to whether or not Hillary Clinton is right in refusing to release speeches made by her to Wall-Street firms! And when a future/policy law maker and potential American Presidential candidate refuses to release her speeches (made to Wall-Street firms), what signals are being sent to the American people and society at large? Whether Hillary’s stance is proper or not, is something for the people to decide but I strongly believe that given the demands of transparency and accountability in public life and electoral politics, Hillary Clinton must come clean on this matter and release her speeches immediately. I really don’t understand her hesitation in this matter! I rest my case and it is for the American people and society at large to take (further) charge on this hugely important matter after all...

[i] A candidate who could get elected as The President of the Unites States is a potential law maker
[ii] From the perspective of the democratic presidential nomination race, Hillary Clinton and Bernie Sanders are the only candidates! And Hillary’s immediate Democratic Party opponent Bernie Sanders has indeed been very forthright and the least that one can expect of Hillary Clinton is the same. Hillary’s argument that let the others (i.e., Republicans etc) do so first and I will follow suit and then release my speeches does not hold any water. Her refusal to release the speeches would only make the American people more curious and perhaps, even a tad suspicious!
[iii] This is because of the lax and laissez-faire regulation and supervision (due to conflicts of interests), which resulted in the financial crisis in 2008, which had global ramifications as well!
[iv] Firms from other industries and large corporations have been mentioned in the context of the campaign funding process, which is discussed later!
[v] In Greek mythology, Icarus is the son of the master craftsman Daedalus, the creator of the Labyrinth. Icarus and his father attempted to escape from Crete by means of wings that his father had constructed from feathers and wax.  Icarus's father warns him first of complacency and then of hubris, asking that he fly neither too low nor too high, so the sea's dampness would not clog his wings or the sun's heat melt them. Icarus ignored his father's instructions not to fly too close to the sun, whereupon the wax in his wings melted and he fell into the sea.
[vi] Data provided to the FCIC by Goldman Sachs.
[vii] These were the largest banks as of 2007. See FCIC, “Preliminary Staff Report: Too-Big-to-Fail FinancialInstitutions,” August 31, 2010, p. 14.
[viii] Data from SNL Financial (www.snl.com/).
[ix] Securities Industry Association v. Board of Governors of the Federal Reserve System, 627 F.Supp. 695 (D.D.C. 1986); Kathleen Day, “Reinventing the Bank; With Depression-Era Law about to Be Rewritten, the Future Remains Unclear,” Washington Post, October 31, 1999.
[x] Edward Yingling, quoted in “The Making of a Law,” ABA Banking Journal, December 1999.
[xi] Goldman Sachs, 2006 and 2009 10-K; Morgan Stanley, 2008 10-K; Merrill Lynch, 2005 and 2008 10-K.
[xii] “Gutfreund’s Pay Is Cut,” New York Times, December 23, 1987.
[xiii] Merrill Lynch, “2007 Proxy Statement,” p. 38.
[xiv] Goldman Sachs, “Proxy Statement for 2008 Annual Meeting of Shareholders,” March 7, 2008, p. 16: Blankfein received $600,000 base salary and a 2007 year-end bonus of $67.9 million.
[xv] Lehman Brothers, “Proxy Statement for Year-end 2007,” p. 28; JP Morgan Chase, “2007 Proxy
Statement,” p. 16.
[xvi] New York State Office of the State Comptroller, “New York City Securities Industry Bonus Pool,”
February 23, 2010. The bonus pool is for securities industry (NAICS 523) employees who work in New
York City.
[xvii] “Banks Set for Record Pay, Top Firms on Pace to Award $145 Billion for 2009, Up 18%, WSJ Study
Finds,” WSJ.com, January 14, 2010.
[xviii] FCIC Report
[xix] Henry M. Paulson Jr., testimony before the FCIC, Hearing on the Shadow Banking System, day 2, session 1: Perspective on the Shadow Banking System, May 6, 2010, transcript, p. 22.
[xx] Henry M. Paulson Jr., written testimony for the FCIC, Hearing on the Shadow Banking System,
day 2, session 1: Perspective on the Shadow Banking System, May 6, 2010, p. 2.
[xxi] Goldman Sachs, 2005 and 2006 10-K (appendix 5a to Goldman’s March 8, 2010, letter to the
[xxii] Appendix 5c to Goldman’s March 8, 2010, letter to the FCIC.
[xxiii] Goldman’s March 8, 2010, letter to the FCIC, p. 28 (subprime securities).

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