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Nye Lavalle
PAGE ONE

Why $70 Million Wasn't Enough
With Wall Street Rules Changing,
A Goldman Star Felt Underpaid;
Throat Lozenges for 100 Days
By MONICA LANGLEY
August 18, 2007; Page A1
New York

Mark McGoldrick earned about $70 million in pay last year -- nearly $200,000 a day -- placing bets using Goldman Sachs Group Inc.'s money. He was one of Goldman's highest-paid employees.

Turns out it wasn't enough.

Internally dubbed "Goldfinger" for running one of Goldman's most-profitable units, Mr. McGoldrick delivered a big chunk of the firm's 2006 profits, people familiar with the matter say. He co-founded and built the firm's secretive "special-situations group," Goldman's elite but opaque money-making machine that buys and sells eclectic assets including British power plants, Japanese golf courses and Thai auto loans.


But the 48-year-old Mr. McGoldrick decided he was working too hard, on a certain path to burnout.

"Years of constant travel around the world took a personal toll on Mark, even though the business was exciting," says Lance West, a former Goldman partner who worked for Mr. McGoldrick. "Finally it was about the money -- but it wasn't just about the money."

Mr. McGoldrick and some of the partners in his unit griped that they weren't being rewarded as well as counterparts at hedge funds and private-equity firms. Though highly paid, his team was "under-compensated," Mr. McGoldrick complained to Goldman colleagues. He groused about being shut out of investments because of potential conflicts inside Goldman. Then he quit.

Now, he is planning a hedge fund where he believes he can make more money with fewer restrictions. The recent market tumult has Mr. McGoldrick "chomping at the bit" to get back into the fray, according to a person familiar with the situation. He has told colleagues that the current credit crunch -- which has battered bond and stock markets -- presents new opportunities. Already, at least one group of investors is eager for him to open his own asset-management shop: some of his former partners at Goldman.

The star investor's rise and departure speaks volumes about how the money is being made these days. For years, Goldman has been the securities industry's gold standard: The investment bank has been the world's most profitable, attracting talented bankers and traders who want to strike it rich. Mr. McGoldrick's success illustrates Goldman's willingness to risk its own capital to make unusual investments.

Goldman's shares have fallen 22.6% over the past two months amid an increasingly volatile stock market and worries over the firm's risk-taking trades. Three of the hedge funds it manages have seen the net value of their assets fall by several billion dollars so far this year. The performance of Goldman's special-situations group will go a long way toward determining how well the firm weathers the current storm.

The special-situations group manages more assets, and operates differently, than the Goldman hedge funds hit in the recent market decline. Those funds are essentially "quant" funds, which make thousands of trades daily based on computer-driven models. On the other hand, the fund formerly run by Mr. McGoldrick consists largely of illiquid, often distressed assets, such as real estate or corporate debt, investments that may not pay off for a few years.

Mr. McGoldrick's departure shows that even top Wall Street investment banks no longer have a lock on key employees. A few top traders at private-equity firms and hedge funds earn as much as $100 million a year, with more autonomy.

His departure was so sensitive inside Goldman that when Mr. McGoldrick resigned in January, the firm didn't send out an internal memo. Instead, some executives hinted that Mr. McGoldrick suffered a medical crisis, partly to head off an exodus by Goldman's other star employees, according to people familiar with the situation. "Mark was such a legendary figure here that there was a lot of chatter when he left," says a Goldman executive. "People were curious or concerned."

In recent months, friends and colleagues of Mr. McGoldrick have been calling to ask if he was, in the words of one person, "wheeled out" of the firm. "The way the firm is spinning my disappearance is nonsense," Mr. McGoldrick responded, these people say. A Goldman spokesman says Mr. McGoldrick left for "personal reasons."

Mr. McGoldrick, who grew up near Boston, joined Goldman from a Canadian bank a decade ago. He and the Goldman partner who recruited him, Pete Briger, traded "distressed" mortgage debt. Amid the 1997-98 Asian financial crisis, the men moved into a small Tokyo apartment. Goldman provided $1 billion to buy up bad debt and other troubled investments.

They bought bankruptcy claims and bad mortgages throughout Japan. After a sharp devaluation of the Thai baht in 1997, they, in a joint venture with General Electric Co., bought 400,000 auto loans in Thailand at 45% of face value, for $500 million. Mr. McGoldrick hired 1,000 employees to do tasks including collecting payments and repossessing cars. The bet paid off: The investment doubled in less than two years.

The pair placed another big bet on soju, an alcoholic drink distilled from rice that is South Korea's most popular spirit. The Goldman unit bought debt of that country's largest liquor maker, Jinro Group. With a $200 million position bought from 1998 to 2002, Mr. McGoldrick became an activist creditor and pushed to overthrow Jinro's management through the Korean courts because Jinro had defaulted on its reorganization plan.

Sparks flew. Some Korean press reports portrayed Goldman as a foreign aggressor out to steal South Korea's national drink. Mr. McGoldrick's team received nine-millimeter shells in the mail with death threats. When Goldman suffered setbacks in the courts, he became more aggressive, says one person familiar with the situation. Four years later, Goldman's reorganization plan won, overthrowing Jinro's management. Goldman then sold its debt, bought at a big discount and now with accrued interest, for $1 billion, five times its investment.

In 2000, Mr. McGoldrick moved to Hong Kong with his wife and three children. At work, he thrived, bragging to subordinates in Hong Kong about the firm's "DNA" and saying it had a huge "risk appetite," according to a person familiar with the situation. "We have a hunting license to invest any amount anywhere in the world," he told them, this person says.

After the stock-market bubble burst that year, Goldman made a bigger push into proprietary trading throughout the firm. Mr. McGoldrick's group, with low costs and 150 employees, could deliver solid profit margins.

After the 2001 terrorist attacks, the special-situations group became a buyer of aircraft on the cheap, from 737s to Airbus jetliners. Mr. McGoldrick negotiated with travel operators falling behind on their aircraft leases, banks dumping aircraft collateral of weak borrowers, and owners who left their jets parked in the desert. As the sector recovered, Mr. McGoldrick sold the planes, earning several hundred million dollars for Goldman.

In 2002, when Mr. Briger joined Fortress Investment Group LLC, an alternative-asset manager, Mr. McGoldrick began frequently working 21-hour days and traveling three weeks each month. He typically would land in Hong Kong at 11 p.m., and go home to work. It would be noon in New York, so he'd participate in three hours of conference calls to review the credit and asset value of U.S. partnerships under consideration. At 3 a.m. Hong Kong time, he'd go to bed until 6 a.m., when he'd rise to review the unit's Asian investments and markets.

By lunchtime, he would turn his attention to his 50-member staff in Europe. He then would be back on the phone with New York to review risks of the latest daily deal cycle.

To reduce his schedule, Mr. McGoldrick switched time zones by moving with his family to London a few years ago. He began a push into alternative-energy investments long before the sector got hot. His group bought Horizon Wind Energy, based in Houston, for about $150 million, infused $800 million to build up its wind-turbine pipeline and recently sold it for $2.1 billion to a Portuguese power company.

Mr. McGoldrick has had his share of bumps. He suffered losses on credit-card receivables in Korea when the government absolved card holders. His unit bought an Asian truck-leasing business, which performed poorly.

As markets recovered around the world in the past few years, Mr. McGoldrick snatched up assets he hoped would spike in value, including office buildings and shopping centers in Japan, China, India and the U.S. With this switch into more equity than debt, he began bumping into Goldman's other divisions, specifically its equity units.

Suddenly he had to contend with a variety of firm rules, particularly Goldman's lists on conflicts of interest. For example, he'd turn in the name of a company he wanted to invest in, which would be run through the "gray list" (where Goldman was working on a deal that hadn't been announced) or the RT, the "restricted-trade" list (where employees can't trade in a company's stock or use certain information in research reports because the firm is engaged in a transaction.)

Mr. McGoldrick bristled at the lists. If one of his proposed trades spent days at Goldman's headquarters for analysis, he'd move to another idea. Some Goldman officials found his behavior as contrary to the firm's culture of being a team player, says one executive.

As he invested in more asset classes in more currencies and countries, the special-situations group grew. "What started off as a specific group in Asia focused on distressed debt grew like a weed," says a former Goldman partner who left a few years ago. "No one stopped Mark and it grew to be 20% of [overall] earnings." Last year, the unit contributed about $4 billion, says one person familiar with the situation. A Goldman spokesman says the firm won't discuss the unit's performance.

By 2005, Mr. McGoldrick oversaw $24 billion in proprietary investing -- that is, making bets with Goldman's money. That year, Goldman Chief Executive Officer Lloyd Blankfein asked Mr. McGoldrick to brief the board on his highly profitable unit. In the firm's board room, Mr. McGoldrick went through a flip book and slide show of the business's revenue, return and growth, say people who attended the meeting.

Despite the firm-wide recognition, the star investor was growing increasingly frustrated by the firm's bureaucracy. When Goldman's officials were slow to approve a potential investment, Mr. McGoldrick directly called David Viniar, Goldman's chief financial officer.

He often demanded Mr. Viniar clear investment ideas immediately, claiming they were "time sensitive," says a Goldman executive. He wanted to sign "confidentiality agreements" with prospective targets within an hour, in a bid to have access to deal information. Occasionally Mr. Viniar relented; more frequently he told his colleague to "go through the process," this person says.

Still, the special-situations group cranked out profits. A huge contributor to the bottom line: Mr. McGoldrick bought scores of bankrupt Japanese golf courses for the past several years, packaged them into one entity and sold it in an initial public offering in November 2006 for a one-time gain of $500 million in Goldman's fourth quarter.

Taking note of their competitors, Mr. McGoldrick and his partners began saying that the "paradigm" on Wall Street had changed. Executives at hedge funds and private-equity firms were receiving 2% of assets under management and 20% of profits. At Goldman, Mr. McGoldrick and his subordinates hadn't been paid based on assets they managed, and instead received less than 15% of profits.

As 2006 drew to a close, Mr. McGoldrick argued that his group should receive a substantial boost in compensation. By his calculations, the special-situations unit should get $400 million -- representing 2% of its assets -- and $800 million -- or 20% of the unit's profits -- for a total of $1.2 billion.

"We're going head to head with Fortress, Cerberus, Blackstone," Mr. McGoldrick told his bosses in New York, referring to big hedge-fund and private-equity firms. He wanted his team to be paid more closely to that formula.

Around the same time, Mr. McGoldrick got sick. Frequently on the phone or on an airplane, he developed severe bronchitis, with a hacking cough. He couldn't get through a phone call without throat lozenges for 100 consecutive days, a person familiar with the matter says. He visited his doctor in London, who ordered him to change his grueling lifestyle.

Then the bonuses were distributed in early January. Goldman didn't come close to Mr. McGoldrick's figure of $1.2 billion in bonuses for his group. Instead, Goldman's senior management awarded the group about $500 million, says a person familiar with the situation. A Goldman spokesman wouldn't comment on employee compensation.

Mr. McGoldrick and several of his top deputies were outraged. Because he led such a profitable unit, Mr. McGoldrick was one of the highest-paid executives at the firm, with about $70 million. Mr. Blankfein, Goldman's CEO, received a pay package totaling more than $53 million.

Mr. McGoldrick believed they deserved more, considering their group's profits. When rivals such as Fortress and Blackstone went public this year, their founders reaped financial bonanzas. His team grumbled that their pay no longer was based on "market reality." Most compelling to Mr. McGoldrick: His close friend, Fortress executive Mr. Briger -- the man with whom he started the special-situations group -- became an overnight billionaire worth $2 billion.

Earlier this year, an exhausted and frustrated Mr. McGoldrick traveled to New York to meet with Goldman management. Because Mr. Blankfein was away, he saw Gary Cohn, Goldman's co-president, and Mr. Viniar.

"I've run my race here, it's over," Mr. McGoldrick told Mr. Cohn, says a person familiar with the situation. "It's time for a change." There wasn't a need to discuss compensation; the latest bonus showed Goldman wouldn't change that.

In a follow-up meeting with Mr. Viniar, the Goldman CFO told Mr. McGoldrick the firm will "miss you very much," according to another person familiar with the conversation.

Goldman didn't send out a memo announcing Mr. McGoldrick's departure. Nor did it immediately say who would take his place.

"All these rumors are flying around," Maya Ajmera, director of the Global Fund for Children, says she told Mr. McGoldrick. She talks occasionally to Goldman executives, since the firm provides financial support to the charity. The most bizarre rumor: that Mr. McGoldrick was at the same London hotel where a Russian dissident was poisoned.

Later, Goldman named Richard Ruzika as Mr. McGoldrick's replacement, to serve as co-head of the unit with Steve McGuinness. The unit's "book" of investments made under Mr. McGoldrick's leadership will last more than two years, meaning that many stakes are longer-term investments that won't be cashed out quickly. This will give the unit a pipeline of deals to work from.

For now, Mr. McGoldrick is biding his time until his agreements with Goldman not to compete or solicit clients expire in the next few months. In the meantime, he's begun running again and lost nearly 30 pounds on his 6-foot-2-inch, 220-pound frame. He's vacationing with his family at their horse farm in Martha's Vineyard and taking his oldest child to visit colleges.

Still he's watching for investment opportunities, and is expected to visit Goldman soon seeking a waiver from the prohibitions of getting back into the business. That's necessary because Goldman has the hammer of holding a portion of Mr. McGoldrick's past compensation in the form of restricted stock.

Former colleagues and other investors are already talking with him about his next expected venture, a hedge fund of his own. Over a recent dinner of steak and wine with Mr. West, who left Goldman last year to become a partner at a private-equity firm, Mr. McGoldrick chatted about investment opportunities arising from the current market turbulence.

"A lot of people in and out of Goldman will want to invest with him," Mr. West says. "Mark will make money wherever he goes."

Write to Monica Langley at monica.langley@wsj.com
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4 justice now
Nye,

Gee thanks!  Just when I begin to believe that there might actually be a finite number of these greedy glutenous ba_tards, you jump right up and post information on another one of these as_holes.  These jerks mustn't believe in hell, as I'm sure if they did they'd be in such fearful of meeting the grim reaper they'd be unable to function at all. They would just sit and  all day and all night.

Maybe they believe they can buy their way into heaven just as they have been able to buy everything else in their pathetic little lives.  I'm sure they're in for one very rude awakening someday. Hopefully, it will be sooner, rather that later, before they have an opportunity to destroy and corrupt even more innocent lives. 

Just My Opinion Again.

r,

4J
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4

I wouldn't be too sure that these guys are particularly happy now.

This greed is  a hunger that cannot be assuaged.

No matter how much they consume, they are still hungry.

Like all the lower life conditions this will lead to hell on earth and they will not be able to escape the suffering they experience as a consequence of it.

No way to beat karma except by changing your life condition and your actions.

Dee


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As I said in my Address to Teldar Paper Stockholders:
 

The point is, ladies and gentleman, that greed -- for lack of a better word -- is good.

Greed is right.

Greed works.

Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.

Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind.

And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the USA.

 

Thank you very much.

 

 

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On Friday, you saw that these greedy bastards, have friends in high places, the dropped interest rate by two basis points. (.5%), and at the same time increased the money supply, in the short run this is band aid approach to a much larger problem.  By adding more money to the supply, the FED further cause's "Devaluation" of our money against others, or in other words, will cause inflation!  They have increased the money supply twice now in response to this, and cut a full 1/2 of one percent. 
 
We are now on the serious collision course for an economic disaster. 
 
There are some people that are making hundreds of millions on whats happening right now, I would like to know if Big Tony Ettinger is or  Michael Milkan is, its time we through his name into the mix!  I'm going to post a story shortly, showing how some are making tens of millions of dollars off whats occurring right now!  
 
Following the dots! 
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Lol...yes that is from a movie called Wall Street Here's some more rhetoric from it:

Gekko: Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents, each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents.

The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated.

In the last seven deals that I've been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you.

I am not a destroyer of companies. I am a liberator of them!

 

Thanks for the fun.

 

Dee





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anon2

Have you noticed that Wall Street is playing a bit more often on the cable stations.

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Gordon Gekko Addresses Teldar Shareholders

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http://www.h-net.org/~hns/articles/2002/072202a.html

A New Deal Prescription for Gordon Gekko

By Robert Brent Toplin
History News Service

 

"Greed . . . is good," said Gordon Gekko when addressing a stockholders' meeting in Oliver Stone's 1987 movie, "Wall Street." Gekko, an arrogant power broker, used insider knowledge to organize corporate buyouts that produced millions for himself while leaving others in ruins. His words resonated strongly in the 1980s, because they reminded audiences of the behavior of Ivan Boesky and other manipulative financiers accused of insider trading. Gekko's words also carry weight in this year of fast-breaking news about corporate malpractice.

Of course, Gekko's provocative observation was not entirely mistaken. Greed is "good" when it produces the enterprise and drive that energizes capitalism. If, however, greed leads to violation of fair business practices and harms the interests of millions of investors and workers, morally or economically, it does no "good."

The Gekko character is a familiar figure in U.S. economic history. His most notable earlier appearance was in the 1920s. In that decade, a time of fast-rising stock prices, manipulative financiers gave the public distorted information about the condition of their business enterprises. They also expanded their investments broadly through risky buyouts of disparate companies. Often they stuffed their pockets with cash while unloading highly questionable securities on the American people. Then, in the late 1920s and early 1930s, the empires they had built like a house of cards collapsed. Millions of unsuspecting investors went crashing down with them.

During the 1930s, Franklin D. Roosevelt's administration found a way to deal with these troublesome Gordon Gekkos of yesteryear. Roosevelt's remedy was not simply to prescribe tough jail sentences for the wayward. His principal response was to establish new rules for corporate behavior, rules that reduced conflicts of interest. The New Deal also supported "transparency," a much-lauded goal of today's reformers, because it facilitates public access to information about corporate activities. 

One of the New Deal's first and most important regulatory measures was the Glass-Steagall Act of 1933, which separated commercial and investment banking and restricted the use of bank credit for speculative activities. Roosevelt also supported creation of a new regulatory agency that dealt with the stock market, the Securities and Exchange Commission. The SEC required that stock offerings contain detailed financial information, to permit investors to make informed judgments on values, and it sanctioned the investigation of executives who knowingly furnished incorrect or misleading information.

The legacy of regulation passed down to us from FDR's New Deal will be difficult to revive today. A laissez faire philosophy now commands almost religious devotion on Wall Street and Pennsylvania Avenue. Brokers and politicians recite the mantra that federal regulation retards economic growth. These advocates of hands-off policies fail to see regulation as many New Dealers did -- as a useful means for promoting honest and equitable business practices. Nor do they recognize -- as the New Dealers did -- that effective regulation helps to restore public confidence in the stock market and produce better conditions for economic progress.

Reformers in Congress are struggling against the force of this laissez faire philosophy as they attempt to design new legislation that will dissuade future Gordon Gekkos from acting in ways that can hurt investors, employees and the U.S. economy. The problems these reformers face are different from the ones the New Deal reformers confronted 70 years ago, but the distinctions are in degree rather than in kind. There is a common theme in the 1930s and in our time: excesses occurred largely because laws were not adequate to check them.

Today's Gordon Gekkos have come to expect that their exercises in greed will go unchallenged, because the American people's fear of the federal government appears to exceed their fear of corporate robber barons. Twenty-first century Gekkos hope the New Deal's approach to business regulation has been forgotten, and that policies such as those established by FDR have little chance of revival.

If Americans remember the lessons of "Wall Street," however, they are likely to give the modern-day Gordon Gekkos their comeuppance. Stone's movie, after all, was not just a morality play about the evils of avarice. It also carried a practical message. What was good for Gordon Gekko, the movie suggested, was not necessarily good for the U.S. economy or the American people. The movie provided a Hollywood solution to the problem: in the final minutes, Gekko's protégé’ turned him in to the authorities. In real life it takes more than a single act of heroism to deal with the challenges posed by excessive greed.

Government must establish the rules of fair play.  


Robert Brent Toplin is a professor of history at the University of North Carolina at Wilmington and a writer for the History News Service.

[Robert Brent Toplin, Department of History, University of North Carolina at Wilmington, Wilmington, NC 28403-3201. Telephone: (434) 295-5105; e-mail: toplinrb@uncwil.edu.]


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