Goldman Sachs is on the cusp of a new era of transparency with help from Warren.
According to a Belgian fund manager who worked for seven years for Goldman in London, and who just arrived here in Pasadena for the Value Investing Congress this week, Goldman Sachs ( GS - news - people ) has an intrinsic book value of $111 a share and that book value should rise at least to $132 a share over the next six months unless disaster strikes. Any price that includes only a small premium over book value should be a magnet for sophisticated investors, like those who admire and emulate Buffett.
Goldman’s image is in the process of a rescue mission undertaken by chairman and CEO Lloyd Blankfein, who received a very public and complete expression of 100% backing from the Oracle of Omaha this past weekend. That support is incredibly significant to Goldman’s dealings with the SEC and Justice Department, since Buffett’s good graces count for a lot in Democratic Washington. It was Warren Buffett, largest shareholder in Salomon Brothers back in the early 1990s, who saved the firm from almost certain criminal indictment and death by his appeal to Congress for leniency.
The embattled Blankfein is helping his and Goldman’s case by getting on network and cable television, energetically defending the reputation of the firm and promising to review all of its business practices to ensure that it interacts with the public in a more responsible fashion. Blankfein recognizes that the public does not know him or understand what Goldman Sachs does and he is engaged in a very aggressive program of public appearances to ameliorate the situation. Blankfein’s feisty and articulate nature was especially successful on Fareed Zakaria’s highly respected Sunday program on CNN.
"We are going through all our processes," Blankfein said over the weekend. "We can’t exist in the same state, we have to look at all the conflicts."
Goldman and its headman need to make the case that net-net the bank did not make a fortune going short mortgage backed bonds in 2007 and 2008. I can’t believe that. Blankfein would be stupid enough to lie about the $1.7 billion loss he claims the firm took on residential mortgages in 2008. To stem the SEC civil lawsuit and convince Justice not to bring a criminal case, Blankfein needs all the candor he can muster to give public testimony that will convince the public, and therefore the Obama administration, that the firm is not an evil ogre. Where he fell down on CNN is an inability to explain away the unfairness of a hedge fund manager picking terrible mortgages to back a security being sold to a German bank. Even though the German bank had been a customer for many CDOs previously--on which it also lost a pile of money.
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