US Financial Crisis: Goldman Sachs in the New Terrain



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Code : ECC0025

Year :
2008

Industry : Banking, Insurance and Financial Services

Region : Global

Teaching Note: Available

Structured Assignment : Available

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Birth of Goldman Sachs GoldmanSachswas founded in 1869 by aGerman Jewish immigrantMarcusGoldman inNewYork. It soon pioneered in the use of commercial paper7 for entrepreneurs and joined New York Stock Exchange (NYSE) in 1896. During the same period, his son-in-lawSamuel Sachs joined the company, prompting a name change asGoldmanSachs. The companywas amajor player in initial public offeringmarket. In 1929, it launched Goldman Sachs Trading Corp., a closed-end fund that failedmiserably as a result of the stockmarket crash of 1929, severely damaging the company's reputation...

Goldman Sachs in the New Millennium Goldman entered the 21st century on a terra firma securing the net earnings of $3 billions during 2000. During that period, it spent over $7 billion in acquiringmajor companies like Spear, Leeds & Kellogg L.P. Following the terrorist attacks on September 9th 2001, the company struggled as earnings and revenues declined due to weakmarket conditions.

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Is Goldman Sachs out of danger? Way back in 2002, the oracle ofOmaha,WarrenBuffet prophesied that derivatives are theweapons ofmass destruction. After 6 years of his prophecy became true. The burst of housing bubble after August 2005, triggered the collapse of subprimemortgage products originated by several banking and financial organisations resulting in huge losses all around the world,mostly inUS and Europe. Despite themelt-down ofmortgage bondmarket and collapse of leading global investment banks like Bear Stearns, Lehman Brothers,Merrill Lynch, breaking the expectations of many analysts, Goldman posted a third quarter profit in 2008 after paying preferred dividends of $810million or $1.81 per share, compared to $2.81 billion, or $6.13 per share in 2007.


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