Taibbi is equally misguided in his account of the technology bubble. Taibbi's argument is that Goldman created and fueled the technology bubble. "Goldman quickly became the IPO king of the Internet era," Taibbi writes darkly, calling the firm "a leading underwriter of stocks during the boom."
This is giving Goldman way too much credit. Anyone who actually lived through the tech boom had to be flummoxed by this. Goldman? The IPO king? In tech circles, Goldman was often considered an also-ran in tech IPOs. What about Frank Quattrone at Credit Suisse First Boston, or Mary Meeker, "the queen of the Internet," at Morgan Stanley? Quattrone himself may have earned as much as $100 million in a single year from his technology IPO exploits and is now making a comeback.
Taibbi argues that Goldman's tech IPOs lacked "quality," but, given the barnyard trough that was the tech bubble, that's a ridiculous claim. Nearly all the tech IPOs, by all underwriters, became essentially worthless; in addition, IPOs work through syndicates of five to 20 banks that sell shares, and many IPOs are "led" by two or more banks that do the heavy lifting. The quality of each tech IPO reflects equally badly on all the banks involved, who all put their names behind the companies and sold the shares to people in the markets.
In any case, the "IPO king" label seemed definitely false. I requested data from Thomson Reuters to double-check how much Goldman dominated tech IPOs. I asked Thomson for the "league tables" of bank rankings based on the dollar value of the IPOs they backed. Just as I thought: Goldman was, for much of the tech boom, a laggard, generating significant (significantly? Or cut?) billions of dollars of business less than its rivals. If Goldman was profiting from a bubble, it wasn't doing as well as others.
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In 1997, Goldman Sachs was No. 4, behind No. 1 Deutsche Bank-then the home of Quattrone-and No. 2 Morgan Stanley-the home of Meeker. The next year, in 1998, Goldman Sachs was No. 5 in tech IPOs, with Morgan Stanley taking the crown as No. 1 and Credit Suisse hiring Quattrone to jump to No. 3 from its previous No. 8 rank. Where Morgan Stanley underwrote $51 billion of tech IPOs in 1998 and Credit Suisse underwrote $28 billion, Goldman underwrote just $19.9 billion.
In 1999-as Taibbi points out-Goldman finally started to compete, rising to No. 2 behind Morgan Stanley and just ahead of Credit Suisse. But that year, Morgan Stanley underwrote $62 billion of IPOs, while Goldman underwrote only $50 billion. In 2000-the last full year of the tech bubble-Goldman Sachs was No. 3, behind both Credit Suisse and Morgan Stanley. The tally that year: Credit Suisse, $136 billion; Morgan Stanley, $108 billion; Goldman Sachs, $97 billion. At the height of the tech boom, Goldman Sachs underwrote 29 percent less in dollar value than its most successful competitor, Credit Suisse.
Considering that banks make money on the percentage of the total IPO value they underwrite-around 7 percent-missing out on $39 billion of IPOs was nothing for Goldman to brag about. That would have been approximately $2.6 billion of fees that Goldman failed to put in its own pocket. Taibbi never explains why Goldman, the IPO king, would choose to do such a thing. The tech IPO boom clearly belonged to Morgan Stanley and Quattrone at Deutsche, then Credit Suisse.
What about Taibbi's other charge that Goldman engaged in "laddering," or promising shares of hot IPOs to insiders or "friends and family" who would buy more later? And "spinning," or giving company executives super-cheap shares in exchange for the promise that they would buy more?
Yes, Goldman may have been involved in something like that. It helps, however, to point out that the class-action lawsuit on laddering included 55 underwriters as defendants. Including Goldman, yes, but also Morgan Stanley, Credit Suisse, Deutsche Bank, Salomon Brothers, Robertson Stephens, and literally every bank on Wall Street. The lawsuit-launched in 2001-was just settled this year, and it was all of $586 million for all of the banks as well as 300 of the failed companies they took public. That was an amount those banks and companies earned before afternoon tea on tech stocks during the boom year. The whole point of the lawsuits, however, is that the banks and companies were in it together-at least 355 entities in all. To single out one bank of 355 as particularly rapacious is ridiculous. What were the other 354 doing, then?