B2 Tuesday, May 17, 2011 • THE BULLETIN
C OV ER S T OR I ES
A year into Greece’s new austerity, despair threatens to erupt in violence By Landon Thomas Jr.
Kostas DeLazaris, who lost his job and is now homeless, visits Klimaka, a center that provides support for the homeless in Athens. DeLazaris was a dedicated union man when he was working. Now, he says, he feels betrayed.
New York Times News Service
ATHENS — His face contorted with anguish, Anargyros recounted how he had lost everything in the aftermath of the Greek economic collapse — the food-processing factory founded by his father 30 years ago, his house, his car, his Rolex, his pride and now, he said, his will to live. “Many times I have thought of taking my father’s car and driving it into a wall,” he said, declining to give his last name because he was reluctant to draw attention to himself under these circumstances. Hunched over and shaking, he sat last week in the spartan office of Klimaka, a social services organization here that provides help to the swelling numbers of homeless and depressed Greek professionals who have lost their jobs and their dignity. “I am a peaceful man, but I hear my mother and father crying at night,” said Anargyros, 41. “We were the people in Greece who helped others. Now we are asking for help.” It has been one year since Greece avoided bankruptcy when Europe and the International Monetary Fund provided a 110 billion euro ($155 billion) bailout. While no one expected the country to reverse its sagging economic fortunes quickly, the despair of Greeks like Anargyros D. reflects a level of suffering deeper than anyone here had anticipated. Economists are predicting a 4 percent contraction in gross domestic product this year, and the raw numbers support the pessimism. Cement production is down 60 percent since 2006. Steel production has fallen, in some cases more than 80 percent, in the last two years. And analysts say that close to 250,000 private sector jobs will have been lost by the end of the year, pushing the unemployment rate above 15 percent. With local headlines shouting of credit rating downgrades and the unlikely possibility that Athens might abandon the euro, panicky Greeks are pulling their money from banks. Greece lost 40 billion euros of deposits last year, and bankers here say withdrawals have increased recently. These struggles have once again made Greece an urgent matter for the 17-nation euro zone, whose finance ministers are to meet on Monday to discuss Greece and the debt crisis that has defied Europe’s year-long efforts to contain it. On the table will be whether Greece — which
Goldman Continued from B1 “Not only was the partnership ownership high, but Goldman didn’t have a lot of products they offered to Main Street America,” said Reddy, a founder of the hedge fund Prisma Capital Partners. “They didn’t have to be as transparent as others.” At the time of the market debut, Goldman’s public relations department had just a handful of people. Reporters used to call Ed Novotny, the firm’s top spokesman at the time, Ed “No Comment” Novotny for his default response to most questions about the company. Today, the team has swelled to dozens of employees, and Goldman has tried to be more vocal, particularly when it believes the company has been maligned. After Foreign Policy magazine wrote an article last month entitled “How Goldman Sachs Created the Food Crisis,” a top communications executive, Lucas van Praag, wrote a letter to the editor in the firm’s defense. In regards to the partnership, a spokesman for Goldman, David Wells, said the group had not “diminished in terms of its leadership of Goldman.” He added investment banking had always had a disproportionate amount of partners “as it is more dependent upon senior relationships” and that suggesting the division was partner-heavy “ignores the deliberate structure and makeup of the business.”
An elite club Most financial companies shed the private partnerships after their IPO’s, transferring the bulk of the ownership to shareholders. But Goldman, the last of the major Wall Street firms to go public, maintained a hybrid model,
Eirini Vourloumis New York Times News Service
is now projected to miss its deficit country’s social fabric are less target by as much as 2 percentage well known. The transformation points of GDP this year — will has been jarring to a citizenry require another round of loans long accustomed to a generous totaling as much as 60 billion eu- welfare state. ros, and what further budget cuts Social workers and municipal would be required in return. officials in Athens report that But there is serious debate there has been a 25 percent inabout whether this kind of pre- crease in homelessness. At the scription — subjecting Greece to main food kitchen in Athens, more cuts and sacrifice in order 3,500 people a day come seeking to justify a second installment of food and clothing, up from about funds from a reluctant Europe 100 people a day when it first — is the right one. opened 10 years This form of ago. remedy violates “(A new deal with The average two very basic eco- Europe) is a dead age of those who nomic principles, show up is now according to Ya- end. There will be 47, down from 60 nis Varoufakis, an an earthquake two years ago, economics profesadding to evisor and blogger at instead and blood dence that those the University of will be spilt.” who are suffering Athens. “You do now are former not lend money at — Kostas DeLazaris, professionals. The high interest rates former tourism worker u nemploy ment to the insolvent who is now homeless rate for men 30 to and you do not 60 years old has introduce austerspiked from 4 perity into a recession,” he said. “It’s cent to 10 percent since the crisis pretty simple: The debt is going up began in 2008. and GDP is going down. Have we Aris Violatzis, Anargyros D.’s not learned the lesson of 1929?” counselor, says that calls to the The arrest on Saturday of Klimaka charity’s suicide help Dominique Strauss-Kahn, the line have risen to 30 a day, twice head of the IMF, on sexual assault the number two years ago. charges could create new un“We cannot imagine this,” Viocertainty about a push for more latzis said. “We were once the severe austerity. Strauss-Kahn 29th-richest country in the world. generally favored a less onerous This is a nation in deep emotional approach, and if he is forced to shock.” resign it is possible that tougher While aid workers refer to a conditions preferred by Germany new generation of homeless, the will be imposed. Greek government does not officially recognize the homeless as a social category in need of assisA jarring fall tance, says Anta Alamanu, who But while the debate over how runs a privately funded shelter to fix the Greek economy has for Klimaka, the social services played out in public, the ways in group. As a result there are no governwhich this slump is tearing at the
ment-supported homeless shelters as they exist in other parts of Europe or in the United States.
only with other partners. “I think the partnership still has a lot of cachet,” said Roy Smith, a former Goldman partner who left the firm in 1988 and currently teaches finance at New York University. “Every culture has a hierarchy and typically everyone wants to be in it — and at Goldman that is where the money is.”
Suzanne Nora Johnson, who sits on the board of the insurer American International Group, spend a lot of their time as corporate directors or executives at nonfinancial companies. Others have moved into public service as diplomats, politicians and top government staffers. Philip Murphy, a former finance chairman of the Democratic National Committee, is now the ambassador to Germany. Malcolm Turnbull is a member of Parliament in Australia. Another 26 are retired and or managing their own money. A few members of the IPO class used Goldman riches to indulge their passions. The onetime Goldman banker David Baum is publisher and editor in chief of the Golf Odyssey and Golf Vacation Insider newsletters. Lee Vance, once a trader at the firm, has written several financial thrillers. One former Goldman executive is even doing God’s work, as Blankfein once jokingly described the role of the investment bank. Gregory Zehner, a former pastor living in Utah, is writing a book about Christianity.
in part as an incentive for top employees. The original class — of which 39 remain today although one is no longer a partner — created the modern Goldman. The group has produced all of the firm’s chief executives since the offering, most recently Lloyd Blankfein. The leading contenders and dark-horse candidates to succeed him have also been partners since the IPO, including Gary Cohn, the firm’s president; Michael Sherwood and J. Michael Evans, both vice chairmen; David Heller, the co-head of equities; and Yoel Zaoui, a top investment banker. For the first time, though, the board could reach into a younger generation, tapping executives like Harvey Schwartz, Edward Eisler and Pablo Salame, also coheads of equities — all of whom were not among the original partnership class. The former partners have become powerful force on Wall Street and beyond. For example, Henry Paulson Jr., the former chief executive at Goldman, and Kendrick Wilson III, a senior banker, took on major roles in federal agencies, prompting the moniker Government Sachs during the financial crisis. Although Goldman executives generally earn fat paychecks, the partnership bestows top pay and prestige. Until 2010, members all received the same base salary, most recently $600,000. They usually take home a disproportionate amount of the firm’s annual profits in the form of bonuses. Another perk: The firm prepares their taxes. Partnership remains an elite club today. Roughly 100 new partners are tapped every two years in a seven-month process. Candidates are not interviewed and do not even know if they are under consideration. Instead the partnership committee vets potential members, discussing them
An influential bunch The prominent members of the original partnership class are well documented, including ex-New Jersey governor Jon Corzine and John Thain, who is now running the lender CIT Group. But the lesser-known names have proved equally influential, according to a New York Times study of the original class of 221 partners. Roughly 100 are still working in the financial industry, including the hedge fund executives Peter Briger Jr. of the Fortress Investment Group, Eric Mindich of Eton Park Capital Management and Jonathan Aisbitt of the Man Group. More than a dozen, including
Explosive situation When Kostas DeLazaris, 47, lost his tourism job on the island of Corfu in 2007, he joined a construction firm in Athens, only to lose that job 10 months ago as the once-buoyant building industry ground to a halt. Now he sleeps on the floor in an abandoned house, sharing the space with two Greek women and a family of Bangladeshi immigrants. He was a dedicated union man when he worked in tourism, serving as vice president of his local branch. But on the same day last week that his former peers marched on Parliament in protest, he said he would not be joining them. “I feel betrayed,” he said, his voice rising in anger. “I paid my dues. I was part of the masses and now I am on the streets.” He snorts at the possibility of a new deal with Europe. “That is a dead end,” he said. “There will be an earthquake instead and blood will be spilt.” Indeed, there are analysts who argue that a social flare-up is in the making, fueled by the divide between the hard-hit private sector and a public workforce of about 1 million strong that so far has not experienced significant job losses. “This is an explosive situation, and there could well be violence,” said Stefanos Manos, a former economy minister who has advocated more aggressive spending cuts. “Especially as those who lost their jobs were earning 50 percent less than those who kept them.”
Trade deals hinge on expansion of jobless benefits By Binyamin Appelbaum New York Times News Service
WASHINGTON — The Obama administration said on Monday that it would not seek congressional approval of free trade agreements with Colombia, Panama and South Korea until Republicans agree to expand assistance for U.S. workers who might lose jobs as a result. President Barack Obama has made the three deals a focus of his foreign and economic policy, but the Monday ultimatum reflects the political difficulty of advancing the deals in the face of high unemployment and opposition from parts of the Democratic base. “This administration believes that just as we should be excited about the prospect of selling more of what we make
Banks Continued from B1 They bundled thousands of home loans into securities that were then sold to investors such as pension funds, mutual funds and insurance companies. It is unclear which parts of the byzantine securitization process Schneiderman is focusing on. His spokesman said the attorney general would not comment on the investigation, which is in its early stages. Several civil suits have been filed by federal and state regulators since the financial crisis erupted in 2008, some of which have generated settlements and fines, most prominently a $550 million deal between Goldman Sachs and the Securities and Exchange Commission. But even more questions have been raised in private lawsuits filed against the banks by investors and others who say they were victimized by questionable securitization practices. Some litigants have contended, for example, that the banks dumped loans they knew to be troubled into securities and then misled investors about the quality of those underlying mortgages when selling the investments. The possibility has also been raised that the banks did not disclose to mortgage insurers the risks in the instruments they were agreeing to insure against default. Another potential area of inquiry — the billions of dollars in credit extended by Wall Street to aggressive mortgage lenders that allowed them to continue making questionable loans far longer than they otherwise could have done. “Part of what prosecutors have the advantage of doing right now, here as elsewhere,
around the world we have to be equally firm about keeping faith with America’s workers,” said Ron Kirk, the U.S. trade representative. The announcement puts the White House in line with congressional Democrats who have made expanded benefits a condition of their support for the trade deals, and at loggerheads with Republicans who say the government cannot afford the cost. Sen. Orrin Hatch, the ranking Republican on the finance committee, said in a statement that the decision was “hugely disappointing.” “It makes no sense to shut the door on increasing U.S. exports by over $10 billion in order to fund a costly program,” said Hatch, who is from Utah.
is watching the civil suits play out as different parties fight over who bears the loss,” said Daniel Richman, a professor of law at Columbia. “That’s a very productive source of information.” Officials at Bank of America and Goldman Sachs declined to comment about the investigation; Morgan Stanley did not respond to a request for comment. During the mortgage boom, Wall Street firms bundled hundreds of billions of dollars in home loans into securities they sold profitably to investors. After the real estate bubble burst, the perception took hold that the securitization process as performed by the major investment banks contributed to the losses generated in the crisis. Critics contend that Wall Street’s securitization machine masked the existence of risky home loans and encouraged reckless lending because pooling the loans and selling them off allowed many participants to avoid responsibility for the losses that followed. The requests for information by Schneiderman’s office also seem to confirm that the New York attorney general is operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices. By opening a new inquiry into bank practices, Schneiderman has indicated his unwillingness to accept one of the settlement’s terms proposed by financial institutions — that is, a broad agreement by regulators not to conduct additional investigations into the banks’ activities during the mortgage crisis. Schneiderman has said in recent weeks that signing such a release was unacceptable.
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