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Goldman Sachs to “Government Sachs”

President-elect, Donald Trump, has already tapped Steven Mnuchin as Secretary of the Treasury. Steven Mnuchin was a partner at Goldman Sachs in charge of equity trading and a member of the management committee. This isn’t the first time an alumni of Goldman Sachs has been asked for a key role in public service which became the center of criticism especially during the Global Financial Crisis when Henry Paulson was the Treasury secretary (hence the nickname “Government Sachs”).

Summary list from a dealbook article on Goldman Sachs executives that moved on to pursue a government stint in the US:

  • President Franklin Roosevelt selected Sidney J. Weinberg, then CEO of Goldman Sachs, to serve as assistant director of the War Production Board; Sidney Weinberg went on to advise Truman, Eisenhower, and Johnson
  • John C. Whitehead: Retired Co-Chairman and Co-Senior Partner at Goldman Sachs in 1984; served as Deputy Secretary of State in Regan’s administration from 1985 to 1989
  • Robert E. Rubin: Partner and member of management committee at Goldman Sachs and also served as Co-Chairman, Co-COO, and Co-Senior Partner; left Goldman Sachs in 1992 and served as Assistant to the President for Economic Policy starting in 1993 for Bill Clinton
  • Kenneth D. Brody: Member of management committee and ran Goldman’s real estate division; appointed by President Clinton as President of Ex-Im Bank
  • Gary Gensler: one of the youngest partners in Goldman’s history; named assistant secretary for financial markets in 1997
  • Jon Corzine: Chief Executive of Goldman Sachs; as a senior partner of Goldman Sachs, he was summoned to help develop a rescue package for the hedge fund Long Term Capital Management by President Clinton
  • Stephen Friedman: Partner, Co-COO, and Co-Chairman of Goldman Sachs; President George W. Bush chose him as chief economic adviser in 2002
  • Robert K. Steel: Vice Chairman of Goldman Sachs; appointed Secretary for Domestic Finance at the Treasury department in 2006
  • Henry Paulson: CEO of Goldman Sachs; Treasury secretary in 2006
  • William C. Dudley: Partner at Goldman Sachs; hired by Timothy Geithner to oversee Federal Reserve Bank of New York
  • While not for the US Government, Mario Draghi who is the President of the European Central Bank is an ex-Vice Chairman of Goldman Sachs in Europe

Tax Loophole?

  • Henry Paulson saw his annual paycheck shrink from $38 million to $183,500 when he took over job of Treasury Secretary
  • He had $700 million equity stake in Goldman Sachs; he can exercise his options and monetize them without paying a dime to the IRS
  • Tax loophole: allows government officials to defer capital gains taxes on assets they have to sell to avoid a conflict of interest, as long as proceeds are reinvested in government securities or a broad array of mutual funds approved by government within 60 days
  • Technically, tax kicks in once these replacement assets are sold using the purchase price of original assets as the cost basis
    • But why sell? Idea is to never sell. If you’re able to hold onto the replacement assets until your demise, you never have to pay it
  • Tax break was designed to ensure that the wealthy are not deterred from taking posts in government due to big tax hit but it amounts to a significant perk of public office
  • Wealthy public servants including Donald Rumsfeld, Colin Powell, and Karl Rove have taken advantage of this
  • Tax perk is only available to members of the executive branch; Jon Corzine had to sell his $300 million stake in Goldman Sachs while serving on the Senate banking committee which is not part of the executive branch
Image Source: CNBC
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