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NEWS > Deals

Goldman buys Spear
September 11, 2000: 4:38 p.m. ET

Brokerage acquires NYSE's leading securities clearing firm for $6.65B
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NEW YORK (CNNfn) - Moving aggressively to keep pace with its peers, Goldman Sachs agreed Monday to acquire Spear, Leeds & Kellogg LP, a leading securities clearing firm, for $6.65 billion in cash and stock, a move designed to strengthen Goldman's ability to market directly to the growing ranks of retail investors.

The acquisition, expected to close by year's end, would dramatically reshuffle the rankings of top firms for executing trades for buyers and sellers on the various exchanges. Following the merger, Goldman Sachs will stand as the largest such specialist on both the New York Stock Exchange and American Stock Exchange, and the second-largest clearing firm on the Nasdaq exchange.

The transaction also completes an abrupt about-face among Wall Street's top brokerage firms, who historically have shunned retail investors for higher-volume institutional traders.

That attitude has shifted in recent months as technology advances allowed retail investors to grab a larger portion of the trading volume. In June, Merrill Lynch (MER: Research, Estimates) made a similar move, paying about $900 million in stock for Herzog Heine Geduld, the third-largest U.S. firm linking buyers and sellers on Nasdaq.

"They are getting one of the prime companies in both [Nasdaq market marking and securities clearing] for a multiple that we estimate at not more than 14 times earnings, so we think this is a very good deal for them," said Guy Moszkowski, an analyst with Salomon Smith Barney.

Goldman Sachs Chairman and Chief Executive Henry Paulson told CNNfn fundamental shifts in how the markets operate, driven primarily by the surge in electronic trading among retail investors, necessitated the merger. (753K WAV) (753K AIF)

graphic"We have no doubt that as the [New York Stock] Exchange changes, as there is more done electronically, I'm sure like a lot of functions the specialist function will evolve," he said. "But we have no doubt we're going to need those skills. We think the winning combination for the future is going to be strong people skills and strong technology."

Terms of the agreement call for Goldman Sachs to issue 34.4 million shares of its stock, valued at approximately $4.5 billion based on the company's closing price Monday, and $2.1 billion in cash to acquire the closely held Spear, Leeds, the No. 1 U.S. stock and option trade execution firm by volume.

Goldman Sachs expects the deal to add to its 2001 earnings by roughly 2 percent on a reported basis and by 9 percent on a cash earnings basis.

The brokerage expects to save roughly $50 million in expenses primarily through lower financing costs. That figure does not include the revenue synergies company officials expect to gain by combining the two operations.

Goldman Sachs does expect to take a one-time charge of $350 million to $400 million related to the creation of a $900 million fund being created to help retain Spear, Leeds top employees.

A highly profitable business


The 69-year-old Spear, Leeds operates in three core areas: securities clearing and execution; bringing buyers and sellers together on the floor of the NYSE, and uniting those parties electronically. Company officials said the firm has generated a profit each quarter for the last nine years and roughly 40 percent of its profit comes from its securities clearing business.

"Their business has been highly profitable and consistently profitable," Paulson said. "We looked at other comparable transactions that had been done ... but remember those are paying huge multiples on profit but smaller cost synergies. We said to make sense for us, we would like the transaction to be accretive immediately."

In addition to being the No. 1 specialist at the NYSE, Spear, Leeds also ranks as the top trade executor at the American Stock Exchange, while its SLK Capital Markets division trades some 7,000 Nasdaq and bulletin board stocks.

"It basically allows them to internally cross more of their Nasdaq volume," Moszkowski said. "It takes the number of stocks that they can make markets in on the Nasdaq up over 6,000 from 300 or so stocks they do now."

Though Spear, Leeds currently has only limited international distribution for its products, Paulson said Goldman Sachs would leverage its products across his company's global operations.

"We've talked a bit about global expansion and we see this as a very, very powerful driver here," he said. "We have a point here that the world is changing. There's no doubt about it, technology is going to be the driver. There's going to be a higher percentage of the trades done automatically, done electronically, as this process evolves. We're going to need skilled trading talent and SL has outstanding specialists. There's nobody doing what they're doing."

Spear, Leeds also is a major investor in electronic communications network REDIBook, one of the top U.S. electronic trading networks. Spear, Leeds competes against discount broker Charles Schwab & Co., Island ECN and Knight/Trimark Group Inc. (NITE: Research, Estimates).

Paulson said Goldman Sachs had some interest in the REDIBook operation, but considered it an "ancillary advantage," and didn't plan to make it a main part of the company's strategy moving forward.

Goldman Sachs has likewise started to sink resources into the Internet, entering an agreement last year with other brokerage firms to develop Primex Trading, an electronic auction site for stocks.

Goldman Sachs (GS: Research, Estimates) shares surged on word of the deal, jumping $8.06 to close at $132.31 Monday, just off its 52-week high. Back to top

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RELATED STORIES

Goldman Sachs raises $4B in secondary- - Aug. 1, 2000

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Goldman Sachs Moving Some Operations to New Complex
By RICHARD NEWMAN
Staff Writer: The Record

January 29, 2002

Goldman Sachs Group has notified employees that it will move its equity sales, trading, and research operations out of One New York Plaza to its $1.3 billion office complex under construction at 30 Hudson St. on the Jersey City waterfront.

In an internal memo, the nation's largest underwriter of stock sales said the move would help it decentralize operations and integrate them with its Spear Leeds & Kellogg subsidiary, Bloomberg News reported Monday.

Separately, a Goldman Sachs rival, Morgan Stanley Dean Witter & Co., announced Monday that it is taking space in Westchester County.

Morgan Stanley agreed to buy a 725,000-square-foot building in Harrison, N.Y., from Chevron Texaco Corp. -- the former headquarters of Texaco, which has merged with Chevron.

Both companies say they have no intention of moving their headquarters out of New York City, but the moves are part of strategies to decentralize operations.

Goldman Sachs declined to comment on the internal memo or confirm which operations would move into the 2 million-square-foot complex in Jersey City. The company has said it will eventually occupy the entire building, enough space for about 5,000 workers.

Spear Leeds & Kellogg, a company bought by Goldman Sachs for $5.4 billion in 2000, already has operations at 10 Exchange Place in Jersey City.

Goldman Sachs employs more than 10,000 people in the New York metropolitan area, including those at Spear Leeds and a hedge fund strategies group in Princeton.


"We do intend to maintain our headquarters in lower Manhattan, where they've been since 1869," said company spokeswoman Andrea Raphael.


Goldman Sachs' lower Manhattan locations, all within walking distance of one another, are the 85 Broad St. headquarters and One Liberty Plaza, 10 Hanover Square, 32 Old Slip, 180 Maiden Lane, and 125 Broad St.

The company, which plans to begin occupying the new building in Jersey City late next year, in May received a state Business Employment Incentive Grant, based on a move of 2,000 employees.

The grant is worth $164.3 million over 10 years to the company, according to Glenn Phillips, spokesman for the New Jersey Economic Development Authority, which administers the grant program.

In November, a second grant of $1.6 million over 10 years was approved for relocation of an additional 75 Goldman Sachs workers displaced by the World Trade Center attack, Phillips said. Goldman Sachs, which may be considering other locations for those 75 employees, has not yet accepted that grant, Phillips said.

The $164.3 million incentive Goldman Sachs did accept is based on 80 percent of the state income tax the 2,000 employees, earning an average annual salary of $216,000, would pay over 10 years.

The move by Goldman Sachs is "going to add growth to the New Jersey economy," said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. "It represents continued decentralization of the regional economy."

Although a company official said the move was not related to Sept. 11, the employee memo -- sent by co-Chief Operating Officers Eric Mindich and Eric Schwartz and the equities chief in Europe, Wiet Pot -- said the destruction of the World Trade Center made moving businesses out of lower Manhattan "increasingly important," and that Jersey City was chosen over sites in Manhattan and other regional locations.

"None fit our business objectives as well or were as attractive financially as Jersey City," the memo said.

The Jersey City waterfront is well-wired and on different power and telephone grids than lower Manhattan, Hughes said, and is preferred by financial companies looking for backup facilities to avoid business disruption while accommodating workers who live in New Jersey.

The complex at 30 Hudson St. is on the former Colgate-Palmolive site.

Raphael said it will include two buildings -- 40 stories and 11 stories -- linked by a glass atrium and with underground parking for 1,200 cars.

While the investment banks restate their commitment to stay in New York, the city is reeling from lost jobs since Sept. 11. It lost about 100,000 jobs in October, November, and December, while New Jersey gained 5,000, Hughes said.

Since Sept. 11, demand for Jersey City office space has pushed prices higher than those in lower Manhattan, according to M. Myers Mermel, chief executive of TenantWise.com, a Wall Street-based online real estate data company.

"Below Chambers Street, for Class A space, prices are in the mid- to low- 30s [dollars per square foot] range," he said. "In Jersey City, prices are now in the high 30s to mid-40s range."

A majority ofklaus jacobs
clive gillinson
richard matlaga
kenneth blalkin 2008
Theodore E Phillips add 2009

MR forst edward 2014

BURTON P RESNICK 2016
CLARISSA ALCOCK BRONFMAN
MERCEDES I BASS


Officer/Director Detail :
I hereby certify that the information indicated on this report or supplemental report is true and accurate and that my electronic signature shall have the same legal effect as if made under
oath; that I am an officer or director of the corporation or the receiver or trustee empowered to execute this report as required by Chapter 617, Florida Statutes; and that my name appears
above, or on an attachment with all other like empowered.
SIGNATURE:
Electronic Signature of Signing Officer/Director Detail Date
FILED
Apr 22, 2016
Secretary of State
CC2234931978
KENNETH J. BIALKIN SECRETARY 04/22/2016
2016 FOREIGN NOT FOR PROFIT CORPORATION ANNUAL REPORT
No
Title CHAIRMAN
Name WEILL, SANFORD I.
Address 767 FIFTH AVENUE
32ND FLOOR
City-State-Zip: NEW YORK NY 10153
Title EXECUTIVE AND ARTISTIC
DIRECTOR
Name GILLINSON, CLIVE
Address 881 SEVENTH AVE.
City-State-Zip: NEW YORK NY 10019
Title VICE CHAIRMAN
Name RESNICK, BURTON P.
Address 110 EAST 59TH STREET
34TH FLOOR
City-State-Zip: NEW YORK NY 10022
Title VICE CHAIRMAN
Name JACOBS, KLAUS
Address HAGNISTRASSE 8
City-State-Zip: ZOLLIKON CH CH-8702
Title TREASURER
Name FORST, EDWARD C.
Address 1290 AVENUE OF THE AMERICAS
City-State-Zip: NEW YORK NY 10104
Title SECRETARY
Name BIALKIN, KENNETH J.
Address 44TH FLOOR FOUR TIMES SQUARE
City-State-Zip: NEW YORK NY 10036
Title VICE CHAIRMAN
Name ALCOCK BRONFMAN, CLARISSA
Address SUITE PENTHOUSE
812 PARK AVENUE
City-State-Zip: NEW YORK NY 10021
Title VICE CHAIRMAN
Name BASS, MERCEDES T.
Address 4824 CRESTLINE ROAD
City-State-Zip: FORT WORTH TX 76107
Officer/Director Detail Continued :
Title VICE CHAIRMAN
Name MAY, PETER W.
Address 280 PARK AVENUE
41ST FLOOR
City-State-Zip: NEW YORK NY 10017
Title VICE CHAIRMAN
Name PERELMAN, RONALD O.
Address 35 EAST 62ND STREET
City-State-Zip: NEW YORK NY 10065 2016



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Foreign Not For Profit Corporation
THE CARNEGIE HALL SOCIETY, INC.
Filing Information
Document Number
F06000000629
FEI/EIN Number
13-6136259
Date Filed
02/01/2006
State
NY
Status
ACTIVE
Last Event
REINSTATEMENT
Event Date Filed
02/05/2008
Principal Address
881 SEVENTH AVE.
NEW YORK, NY 10019
Mailing Address
881 SEVENTH AVE.
NEW YORK, NY 10019
Registered Agent Name & Address
CORPORATION SERVICE COMPANY
1201 HAYS STREET
TALLAHASSEE, FL 32301-2525
Officer/Director Detail
Name & Address

Title CHAIRMAN 2017

WEILL, SANFORD I.
767 FIFTH AVENUE
32ND FLOOR
NEW YORK, NY 10153

Title TREASURER

Forst, Edward C.
1290 AVENUE OF THE AMERICAS
NEW YORK, NY 10104

Title EXECUTIVE AND ARTISTIC DIRECTOR

GILLINSON, CLIVE
881 SEVENTH AVE.
NEW YORK, NY 10019

Title SECRETARY

BIALKIN, KENNETH J.
44TH FLOOR FOUR TIMES SQUARE
NEW YORK, NY 10036

Title VICE CHAIRMAN

RESNICK, BURTON P.
110 EAST 59TH STREET
34TH FLOOR
NEW YORK, NY 10022

Title VICE CHAIRMAN

ALCOCK BRONFMAN, CLARISSA
SUITE PENTHOUSE
812 PARK AVENUE
NEW YORK, NY 10021

Title VICE CHAIRMAN

JACOBS, KLAUS
HAGNISTRASSE 8
ZOLLIKON, CH CH-8702 CH

Title VICE CHAIRMAN

BASS, MERCEDES T.
4824 CRESTLINE ROAD
FORT WORTH, TX 76107

Title VICE CHAIRMAN

MAY, PETER W.
280 PARK AVENUE
41ST FLOOR
NEW YORK, NY 10017

Title VICE CHAIRMAN

PERELMAN, RONALD O.
35 EAST 62ND STREET
NEW YORK, NY 10065




881 seventh ave new york ny 10019 2009


Ed Forst, Former Harvard VP, Leaves Goldman
By JARED T. LUCKY, CONTRIBUTING WRITER December 5, 2011
0
Former University vice president Edward C. Forst ’82 will retire from his position as co-head of investment management at Goldman Sachs, according to internal memos obtained by news organizations last week.

According to the New York Times, insiders speculate that Forst’s departure was a culmination of building tension within the investment management division, including Forst’s alleged failure to attend an important meeting with a client.

During Forst’s one-year stint at Harvard, he worked with University departments and the Harvard Management Company to manage budgets and investments during the worst of the 2008 financial crisis.

Forst became the University’s first executive vice president, responsible for streamlining the management of administration, human resources, and finance.

He helped to restructure Harvard’s investments to reduce risk in the endowment, and sought to scale back expenditures across the University.

“Ed has made important contributions to Harvard’s work, from stem cell research to university finances to financial aid. I have benefitted from his counsel both at Harvard and as an engaged alumnus,” University president Drew G. Faust wrote in an email.

Three weeks after Forst arrived at Harvard, then Treasury Secretary Henry M. Paulson asked him to help craft the $700 billion dollar bailout for struggling financial institutions. Forst agreed to advise Paulson while continuing to serve as vice president at Harvard.

But in 2009, Forst left the University to become global co-head of Goldman Sach’s investment management division.

Forst has not publicly discussed future job plans. He did not respond to a request for comment on Sunday.

According to memos signed by Goldman CEO Lloyd C. Blankfein ’75, Eric S. Lane—an internal hire—will replace Forst, who plans to retire at the end of the year.

Even after leaving the University, Forst maintained a presence at Harvard, participating in both the Committee on Student Excellence and Opportunity, a body that seeks to improve financial aid, and the Committee on University Resources, a group of top-level donors.

Forst’s successor at Harvard, the current executive vice president, is Katherine N. Lapp.

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http://www.thecrimson.com/article/2011/12/5/Forst-VP-Goldman/


Ex-VP Forst Returns to Goldman
26-year Wall Street veteran rehired to senior strategy position at noted bank
By JUNE Q. WU, CRIMSON STAFF WRITER September 1, 2009
0
Edward C. Forst ’82, Harvard’s first executive vice president who stepped down Aug. 1 after a year on the job, will return to Goldman Sachs on Sept. 8 as the firm’s senior strategy officer while continuing to advise Harvard on finances and capital planning.

Forst, who had spent 14 years at Goldman immediately prior to his brief tenure at Harvard, will rejoin the company’s management committee and “review, define, and focus the firm’s global strategy,” according to an internal memo sent by Lloyd C. Blankfein ’75 and Gary D. Cohn, Goldman’s CEO and president, respectively.

The 26-year veteran of Wall Street abruptly announced his intentions to return to the financial services industry in May, stating his desire to seek out opportunities in an environment much changed by the crisis.

“This has been an outstanding year for me,” Forst told The Crimson after announcing that he would leave the University. “But it’s time to return to where I began.”

In his role as one of University President Drew G. Faust’s top advisers, Forst sought to improve the cost-effectiveness of the University’s operations by consolidating resources, such as office supplies, that have traditionally been procured separately at each of Harvard’s schools.

After Harvard’s nearly $37 billion endowment took a precipitous plunge, Forst’s job description expanded to include working with administrators across the University to close budgetary gaps at the schools. Many school leaders described his involvement in the budget-cutting process as “critical,” and Forst met with Faust on an almost daily basis.

University spokesman John D. Longbrake confirmed yesterday that Forst will remain on the University’s Debt Asset Management Committee and will join the Committee on University Resources, a little known body of prominent donors.

Forst, who holds an MBA from the University of Pennsylvania, arrived from Goldman Sachs at the end of a protracted year-long search. Though new to higher education administration, he had kept a hand in Harvard’s affairs, co-chairing several class gift committees and the University Committee on Student Excellence and Opportunity.

He will be replaced by Katherine N. Lapp—currently the executive vice president for business operations at the University of California—who will take the post in early October.

—Staff writer June Q. Wu can be reached at junewu@fas.harvard.edu.

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 workers displaced from lower Manhattan have been moved to midtown, where "an enormous amount of subleasable space came out of the woodwork," Hughes said.

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Sashi Dias-valtz Reviews & Info
Sashi Dias-valtz is a financial advisor with Goldman Sachs Execution & Clearing, L.p. Sashi Dias-valtz operates out of New York, NY....see more
Firm: Goldman Sachs Execution & Clearing, L.P.
Contact:
200 West At Murray And Vesey Streets
New York, NY 10280
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Goldman Sachs Execution & Clearing, L.P. Reviews & Info
Other Names Used: Spear Leeds & Kellogg, Spear Leeds & Kellogg L.p.
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Goldman Sachs Execution & Clearing, L.P. Review Highlights

3 INDICTED ON INSIDER CHARGES
By JAMES STERNGOLD
Published: April 10, 1987

A Federal grand jury yesterday indicted three senior Wall Street traders who had been arrested in February on charges of insider trading.

The three, Robert M. Freeman, 44 years old, director of arbitrage at Goldman, Sachs & Company; Richard B. Wigton, 52, head of arbitrage at Kidder, Peabody & Company , and Timothy L. Tabor, 33, a former arbitrage trader at Kidder, Peabody, were each charged with four felony counts. The long-awaited charges included conspiracy to commit securities, mail and wire fraud and three counts of having committed securities fraud.

Through their lawyers, each denied the charges in the indictment, obtained by the United States Attorney in Manhattan.

A number of lawyers involved in the case, criminal law experts and Wall Street executives said they were struck more by what was not in yesterday's indictment than by what was included. The nine-page document repeats much of the information in the original complaint filed at the time of the traders' arrests, but it contains less information, in several respects, than that complaint. No Other Stocks Mentioned

No new stocks were identified as the subject of the insider trading. As in the complaints, the only stocks mentioned were of the Unocal Corporation and Storer Communications Inc., and there was no reference to the Continental Group Inc.

Martin A. Siegel, a former Kidder, Peabody investment banker, previously pleaded guilty to a charge that he had received an inside tip about Continental from Mr. Freeman, and then had Kidder, Peabody profit from trading in its stock.

In subpoenas issued to the firms after the arrests, the Government sought information about more than 40 companies that had been involved in takeovers or were clients of the firms, sources with knowledge of the investigation have said. The sources said that subpoenas were also issued to individuals at each of the firms.

In a search warrant obtained to collect records from Mr. Freeman's office in February, the Government also alleged that Mr. Freeman told Mr. Siegel he had created ''padded'' research files on stocks in which he traded illegally, so it would appear that the trades were based on legal information.

'From what I know there is substantial material that could be used to impeach Mr. Siegel's testimony,'' said Andrew Lawler, Mr. Tabor's attorney. ''We intend to enter a plea of not guilty and to aggressively litigate.''

According to the indictment, from June 1984 to January 1986 Mr. Siegel swapped tips with Mr. Freeman about pending takeover transactions on which their firms were working. Secret Details on Storer

Mr. Siegel reportedly leaked secret details of a takeover involving Storer Communications to Mr. Freeman. Mr. Freeman is said to have then traded with that information, earning unspecified profits for himself, his family and Goldman, Sachs.

In turn, Mr. Freeman is said to have tipped off Mr. Siegel about a takeover bid involving Unocal, a Goldman, Sachs client. Mr. Siegel is said to have passed this information to Mr. Wigton and Mr. Tabor, who used it to earn unspecified profits for Kidder, Peabody.

''Mr. Freeman will plead not guilty, and we look forward to going to trial,'' said Paul J. Curran, Mr. Freeman's attorney.

''Mr. Wigton will be found innocent,'' said Stanley Arkin, his attorney. Kidder, Peabody suspended Mr. Wigton without pay yesterday, pending a trial, the company said.

Mr. Freeman remains a partner at Goldman, Sachs. Sources close to the firm said that since his arrest he had been spending most of his time helping to prepare his defense.

Mr. Tabor is currently unemployed.

photo of Robert M. Freeman; photo of Richard B. Wigton; photo of Timothy L. Tabor

Neither Kidder, Peabody nor Goldman, Sachs was charged in yesterday's indictment, despite the Government's allegation that they had profited from the trading.

An arraignment of the three traders was set for next Thursday in Federal District Court in Manhattan. Would Be First Insider Trials

The lawyers for the indicted traders said that they planned to fight the charges in court and insisted that their clients would be vindicated. Their responses indicated that the Government might face its first trials since the scandal blew up last May with the arrest of Dennis B. Levine, a former investment banker at Drexel Burnham Lambert Inc. Up to now, 10 investment bankers or lawyers have pleaded guilty to felony charges or agreed to do so, without one case having gone to court.

The indictment had been expected since the three were dramatically arrested, shocking Wall Street and heightening the nervousness created by the spreading scandal.

Mr. Tabor was arrested at his Manhattan home late on Feb. 11 and Mr. Freeman and Mr. Wigton were taken from their offices on Feb. 12.

ll had been implicated by Mr. Siegel, a former senior investment banker and takeover specialist at Kidder, Peabody. He pleaded guilty on Feb. 13, the day after Mr. Freeman and Mr. Wigton were arrested. He also settled Securities and Exchange Commission charges that he had sold inside tips for $700,000 to the arbitrager Ivan F. Boesky. Siegel Only Known Source

In its original complaint, the Government hinted that its charges had resulted from information provided by sources in addition to Mr. Siegel, although it did not identify the sources. Nor did the indictment issued yesterday refer to any other potential witnesses. The defense lawyers involved indicated that they looked forward to cross-examining Mr. Siegel, should he be a key Government witness.

http://www.nytimes.com/1987/04/10/business/3-indicted-on-insider-charges.html

William C. Dudley

President
Federal Reserve Bank of New York

William C. Dudley took office on January 27, 2009, as the tenth president and chief executive officer of the Second District Federal Reserve Bank, at New York. In that capacity, he serves as the vice chairman and a permanent member of the Federal Open Market Committee, the group responsible for formulating the nation's monetary policy.

Prior to being named president and chief executive officer, Mr. Dudley had been executive vice president of the Markets Group at the Federal Reserve Bank of New York, where he also managed the System Open Market Account for the Federal Open Market Committee. The Markets Group oversees domestic open market and foreign exchange trading operations and the provisions of account services to foreign central banks.

Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and served as the firm's chief U.S. economist for a decade. Earlier in his career at Goldman Sachs, he had a variety of roles including a period when he was responsible for the firm's foreign exchange forecasts. Prior to joining Goldman Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley was an economist at the Federal Reserve Board from 1981 to 1983.

He was a member of the Technical Consultants Group to the Congressional Budget Office from 1999 to 2005.

Mr. Dudley received his doctorate in economics from the University of California, Berkeley in 1982 and a Bachelor of Arts degree from New College, Sarasota, Florida in 1974.

New York -- Second District

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Covers the state of New York; Fairfield County in Connecticut; and 12 counties in northern New Jersey, and serves the Commonwealth of Puerto Rico and the U.S. Virgin Islands.

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http://www.federalreserve.gov/aboutthefed/bios/banks/pres02.htm

November 30, 2011

Lend Freely BUT AT A PENALTY RATE!! Blogging: Yes, the U.S. Government Ought to Own the Banks Now
Chart of the day Morgan Stanley bailout edition | Felix Salmon

Without the Fed and the Treasury, the shareholders of every single money-center bank and shadow bank in the United States would have gone bust.

Felix Salmon:



Chart of the day, Morgan Stanley bailout edition: Ladies and Gentlemen, this is what a lender of last resort looks like…. The black line is Morgan Stanley’s market capitalization, which… fell as low as $9.8 billion in November 2008. The orange line is the amount that Morgan Stanley owed to the Federal Reserve… which peaked at $107 billion on September 29, 2008. And the red line is… Morgan Stanley’s debt… as a percentage of its market value. That ratio… peaked… north of 750%.

Many congratulations are due to Bloomberg, for extracting this information…. [I]f the ECB wants to avert a liquidity crisis, charts like this give a sobering indication of just how far it might have to go, and how quickly it might have to act…. The Fed didn’t blink: it kept on lending, as much as it could, to any bank which needed the money, because, in a crisis, that’s its job.

The Fed likes to say that it wasn’t taking much if any credit risk here: that all its lending was fully collateralized, etc etc. But it’s really hard to look at that red line and have a huge amount of confidence that the Fed was always certain to get its money back. Still, this is what lenders of last resort do….

The Fed’s argument against publishing the data was that it “would create a stigma”, and make it less likely that banks would tap similar facilities in future. But I can assure you that at the height of the crisis, the last thing on Morgan Stanley’s mind was the worry that its borrowings might be made public three years later…
In the fall of 2008, counting the Fed and the Treasury together, a peak of 90% of Morgan Stanley's equity--the capital of the firm genuinely at risk--was U.S. government money. That money was genuinely at risk: had Morgan Stanley's assets taken another dive in value and blown through the private-sector's minimal equity cushion, it would have been taxpayers whose money would have been used to pay off the firm's more senior liabilities. "Fully collateralized" the loans may have been, but had anything impaired that collateral there was no way on God's Green Earth Morgan Stanley--or any of the other banks--could have come up with the money to make the government whole.

When you contribute equity capital, and when things turn out well, you deserve an equity return. When you don't take equity--when you accept the risks but give the return to somebody else--you aren't acting as a good agent for your principals, the taxpayers.

Thus I do not understand why officials from the Fed and the Treasury keep telling me that the U.S. couldn't or shouldn't have profited immensely from its TARP and other loans to banks. Somebody owns that equity value right now. It's not the government. But when the chips were down it was the government that bore the risk. That's what a lender of last resort does.

That's why Bagehot's rule is to lend freely but at a penalty rate. The bankers should not profit from the fact that they were over leveraged, and compelled the government to act as a lender of last resort.

http://delong.typepad.com/sdj/2011/11/yes-the-us-government-ought-to-own-the-banks-now.html

Is Goldman Spokesman Michael DuVally Lying? Goldman's 47-52 Market In YRC CDS Would Indicate So...

Tyler Durden's picture
by Tyler Durden
Dec 17, 2009 1:27 PM

Earlier, Goldman Sachs, which has a propensity for pissing pretty much everyone off these days, got in some hot water with the Teamsters, for allegedly "actively soliciting bond trades for clients and
underwriting credit-default swaps to benefit from a failed
exchange and resulting bankruptcy." We won't comment on this as we have repeatedly said it is quite farfetched to say that CDS in itself can create the kind of death spirals that those unfamiliar with the product tend to believe occur courtesy of CDS traders. However what did catch our attention was the following claim made by Goldman spokesman Michael DuVally: “Goldman does not have a position in [YRC], nor are
we making markets in the company’s bonds or credit-default
swaps.” That we will comment on, because it appears to be an outright lie.

Yesterday, December 16th, at 10:46 am Goldman trader Josh Hershman sent out a Bloomberg run to clients in which Goldman made a market in YRC 5 year CDS as 47-52 (we won't comment on that bid/ask spread, suffice it to say these kinds of spreads will guarantee Goldman keeps raking in the billions for years to come.) This is a market, and also highlighting that "25MM CASH AND CDS TRADING HERE POST EXTENSION" doesn't really help your case. DuVally either does not understand what making markets is, or, much worse, is blatantly lying to Bloomberg. Both cases require additional elaboration by Goldman. In either case we suggest Michael go straight to the corner top floor office, with a dunce hat, for a stern reprimand.
http://www.zerohedge.com/article/goldman-spokesman-michael-duvally-lying-goldmans-47-52-market-yrc-cds-would-indicate-so