The Goldman Sachs Group Inc.

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John L. Weinberg and John Whitehead were promoted to senior partners upon the death of Gus Levy in 1976. Some years later, Whitehead left the firm to become Assistant Secretary of State in the Reagan administration, and Weinberg became chief partner and chairman of the management committee.

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In early 1989, in an effort to retain its partnership status in the face of growing corporate competition, Goldman, Sachs elected to seek capital to expand its merchant-banking activities. With seven insurance companies, it formed a ten-year consortium that infused the firm with $225 million in new capital. Structured like a preferred stock, the expanded partnership was similar to that undertaken in 1986 with Japan's Sumitomo Bank when the bank purchased a 12.5 percent share of the brokerage house for upwards of $500 million. While entitled to 12.5 percent of Goldman, Sachs's profits, Sumitomo, like the newer partners, would be prevented by federal law from having voting rights within the firm. Goldman, Sachs would continue to accept such equity investments into the next decade.

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Goldman, Sachs began the 1990s with a boom, reporting a record pre-tax profit of $1.1 billion in 1991 and paying out end-of-1992 bonuses of 25 percent annual salaries to employees. By 1993, the company had become one of the most profitable in the world, with pre-tax earnings of $2.7 billion. Some of this gain could be attributed to its successful offering of Japanese securities to U.S. investors as other than foreign exchange instruments, as well as the investment banking firm's expansion of its markets overseas.

I would hardly be surprised to find that G-S aggressively shorted the Nikkei starting in '89, while still selling Nikkei stocks to US clients and continued to do so, especially during the bear market rallies that followed through '92. Nor would I be surprised were they to have engaged in massive naked shorts at such times while operating through the CBOT to insure that things go in the preferred direction.

I doubt that G-S or J.P. Morgan can be blamed for the growth of the Nikkei bubble but their derivative "innovations" were well timed to benefit from the bust.

Through the mid '90s G.E. lived off of the Japan Carry Trade. Getting Yen for almost zero interest and doing almost anything with them in the USA is, is suspect, a large part of what gave Jack Welch a reputation for financial genius. That was the funding source for G.E. Capital during that time. I wouldn't be surprised to find that G-S was involved.

But the case still has to be made.

"It is not necessary to have hope in order to persevere."