Just My Luck – Chapter 10
Remember I promised some ranting in the Welcome to my blog ? Read on.
I lost my job at Aon for a second and final time in 2005, when then NY State Attorney General Eliot Spitzer accused Marsh, Aon, and just about the entire insurance brokerage industry of bid rigging and double-dipping on commissions. Mr. Spitzer’s highly publicized prosecution-in-the-media of the alleged culprits indicted in the brokerage “scandal” did not result in one guilty verdict – the cases were so weak that when they were finally adjudicated in court, many were thrown out for insufficient evidence.
But in the meantime a great deal of damage was done. The reputations and careers of many good and honest people were ruined by the grandstanding allegations of Mr. Spitzer in his take-no-prisoners quest to sit in the Governor’s Office at the next election.
Legal defense fees and years of having Spitzer’s highly publicized charges dangling over their heads took a heavy toll on scores of innocent people. Insurance brokerage companies, feeling reform pressure from clients and misled public opinion ignited by Spitzer, announced an overhaul of their operations’ sources of income. In the face of these income reforms, in order to retain some semblance of stability of their firms’ worth on Wall Street, the brokerage companies had to slash costs to maintain profits. My salary, benefits, and employment were among those slashed at Aon.
By the time Governor Spitzer was flagrantly “exposed” (pun very much intended) in the company of a young prostitute in the employ of the “madam to the rich and famous,” Heidi Fleiss, the carnage he’d heaped on others was done. It seemed fitting that, after destroying the lives, caree
rs and reputations of so many to satisfy his personal hunger for power and fame, his subsequent swelled head and sick sexual satisfactions ruined his life as well.
Unfortunately, his collateral damage also included his (now former) wife and their children in the bargain.
Justice was not served in the lives of any of Spitzer’s victims in this Greek tragedy. His downfall was no restitution for his victims.
But wait…there’s more!
One of the collateral victims of Spitzer’s witch-hunt was the President and CEO of Marsh & McLennan’s global property and casualty insurance brokerage operations, who was fired in one of the first actions of the brand new Chairman of the firm’s holding company.
Marsh needed a new top boss because Mr. Spitzer flatly refused to communicate with the incumbent Chairman in any way about the allegations and suits. Thus blackmailed, the Chairman stepped down and the Marsh Board did an extensive, meticulous and thorough 45-minute search for their new Chairman.
They chose, surprise-surprise, Mr. Spitzer’s own former boss and mentor, Michael Cherkasky, who shortly agreed to an $850 million settlement from Marsh in negotiations with his former protégé. (Cute, huh?)
According to Cherkasky, he didn’t fire the Global Property & Casualty Brokerage CEO for any involvement in the alleged activities (there was none), but because the scandal happened “on his watch.” It was only just a happenstance coincidence that the Property & Casualty CEO, who had come up through the ranks of Marsh was infinitely better qualified and ready to lead the holding corporation than was the new Spitzer-buddy Chairman. Neutralize your competition.
Months later the now former CEO of Marsh P&C wrote a business plan for a new insurance brokerage company. He joined forces with an insightful former Chairman of the Marsh holding company who came out of his retirement to help convince investors to capitalize the new firm. Part of their pitch was related to timing. There were now many disgruntled Marsh, Aon, and Willis clients looking for alternative sources of insurance brokerage representation. Likewise there were a great deal of disgruntled but talented brokers inside, or recently released from, the big brokerage firms.
Bob was among the new firm’s first recruits and a several weeks later I joined this start up company. We had some fun again for a while, but eventually he and then I retired from the business for good.
I hold a very healthy disregard for the pervasive, nasty, pure greed-driven politics that operate at the top ranks of many major corporations, especially in financial service firms. While not every one who rises to the top is power hungry on the way up and power crazed when they get there, way too many are. If these are the champions of capitalism, free markets, and the financial workings and future of our nation, we are in big trouble. Actually, we already lived through big trouble spawned by them.
Think about the leaders of financial companies that have been identified as “too big to fail.” Does it not follow that the leaders of a company that is too big to fail are thereby too big to be accountable?
Too Big to Be Accountable – Goldman Sachs
Goldman Sachs – This once venerable company did not just knowingly, but purposely gathered a rogue’s gallery of failing mortgages together into a sure-to-fail investment package. (They must have had loads of fun assembling that toxic package, rubbing their itchy, lecherous hands and giggling ‘til they hurt like school boys at the stunt they were about to pull.)
With their DOA loans tied in a yellow bow, they sent their brokers loose to dial their hot little I-phones to call their “clients” whose financial best interests Goldman Sachs had a moral (though surprisingly not legal) fiduciary obligation to serve. These best-in-the-business-at-their-craft salespeople skillfully lied through their brokerage dentures about how glorious an investment this package of stellar-performing loans was. A real bargain too!
At the time, Goldman Sachs was the most admired and trusted of investment banks, so a recommendation from them commanded an investor’s attention. Goldman sold all the pieces of this huge perfumed financial package like popcorn at the circus.
Besides the truth that these loans were carefully hand-selected guaranteed failures, an even more egregiously greedy plan involving this gigantic bag of excrement was underway. Very quietly Goldman Sachs started laying bets in the market that this package, that they created to fail, would indeed fail. Talk about a sure thing! (Fortunately no one was willing to take their bets that the sun would rise tomorrow.)
They were blatantly taking clients for suckers! Their giggles became raucous guffaws.
What perversion drove their thinking? What overflowing deluge of audacious conceit must they have had to even entertain the idea of bold-faced bilking their clients in a double-rigged game? More importantly, how many times had they just as secretly done this before?
About the only thing they didn’t do to their clients in this deal was throw custard pies in their faces for good measure. (At least I haven’t heard that they did.)
Think of it this way – Goldman Sachs is a race car dealer. One of their cars is running in a high stakes race. We’re in England where it’s legal to bet on anything.
Goldman Sachs secretly removes the high performance engine from one of its best performing and best looking cars and replaces it with a used two-stroke lawn mower engine. As race day approaches, Goldman Sachs spreads the word that their car has never performed better and in their kind benevolence, they are generously offering shares in the car before the race so that their clients can share the huge purse that will go to the winner. There’s no reason to inspect the car, after all this is Goldman Sachs underwriting it. The buyers expect to hold their shares of the car in future races and eventually sell the shares at an enormous profit.
The shares in the Goldman Sachs car sell out at steadily increasing premium prices in no time. Meanwhile, word has spread at the track and in Vegas about the car and not only its owners, but other folks are lining up to lay bets on it. With every bet, the odds on the Goldman Car winning get shorter and the odds that it will lose the race get longer.
As race day begins, Goldman’s shares of the car have long ago sold out, netting them $12 million for the sabotaged car. In the betting on the race, Goldman has negotiated 100 to 1 odds that the car will lose the race and so lays the $12 million on those odds.
As the cars roll out for the race some folks notice that the Goldman car sounds like a lawn mower, but in the roar of the high performance engines of the other 10 cars, it’s hard to tell. The flag comes down and the cars roar off.
But wait, the Goldman car is barely moving. It’s already way behind the other cars. Even an old pedal car driven by a five-year-old who looks like Charlie Brown is ahead of it. The former Goldman car comes across the finish line two-days and eight hours later, as the custodial staff is washing blood off the stands. The pedal car finished a day ago so the Goldman car is, surprise-surprise, dead last. (Strangely, the grass behind the car’s route is shorter than the grass to either side.)
The surviving owners of the shares in the car are furious when they learn that the engine under the hood of their car was a Briggs & Stratton, not a Dodge Hemi. And the folks who own and/or bet on the Goldman car are livid that they have obviously been taken, big time. Meanwhile, the Goldman Rep collects his firm’s winnings on their 100 to 1 odds. Let’s see, that’s $1.2 billion, plus the funds laid down to bet.
That makes the final score Goldman $1.212 billion / Hapless Clients ($1.212 billion).
Somebody Do Something!
The crowd is angry and somebody calls the cops. They investigate the situation and report it to the District Attorney who files a lawsuit against Goldman Sachs. The chairman of Goldman won’t even admit what they did was wrong (and it is not illegal) and says, gosh, he feels awful sorry for his clients. The District Attorney and the Judge convene and decide that Goldman Sachs should be fined (it’s hard to find a number that would hurt Goldman a small fraction as severely as the hurt they caused) and must promise to never do that again. (Is this a sentence or an admonishment from an overindulgent mother to her spoiled brat kid?)
The problem is, they’re still laughing at the rest of us.
- Did anyone do any jail time for this gigantic, calculated, carefully planned money grabbing fraud that contributed to the biggest financial disaster ever? – Well, no. Why should they?
- Was the Chairman or any other executive of Goldman fired for this? No. Why do you ask?
- Thanks to the Supreme Court’s Citizen’s United decision, what are the limits of the amount that Goldman Sachs can give in support of any or all candidates for President of the United States? No limit How about Senators? No limit Congressmen? No limit Your Local Sheriff? No limit The Animal Control Officer? No limit
- How badly do these candidates need money to run for office? No limit
- What do the candidates tacitly owe in return for these donations? No limit
- Is Goldman Sachs still considered to be a top notch investment bank? Yep
- Why? Too Big to Fail
- Ultimate Federal fine? $5 billion (less than other financial institutions and a drop in the bucket considering Goldman’s Income Statements)
- Lesson Learned? Keep donating to buy politicians and when stretching the law or brazenly flouting it, try not to get caught (but don’t worry if you do, you’ll get away with it in the end)
[You can’t make this stuff up. It defies credibility. But here we are.]
But Wait…There’s Still More
©2016 James Ash