California Watch
A Project of the Center for Investigative Reporting
Money and Politics

April 26, 2010 | Lance Williams

Political advisers to GOP front-runner Meg Whitman believe a candidate’s connection to the Goldman Sachs investment bank is a cause for concern – at least, if the candidate is Democrat Jerry Brown.

This weekend the LA Times began zeroing in on how the issue of Goldman Sachs, the New York investment bank that is a major player in public finance in California, will play out in the 2010 Governor’s race.

It turns out that Whitman’s team is appalled because the city of Oakland agreed to what has turned out to be a disadvantageous interest-rate swap created by Goldman the year before Brown was elected mayor.

The deal, which was supposed to protect Oakland against rate hikes on its scheduled repayments for municipal bonds, was “a big money deal that is costing California taxpayers millions,” Whitman spokesman Tucker Bounds told the Times on Saturday.

Whitman herself hasn’t commented on her own connections to the Wall Street investment bank.

Questions about Goldman were first raised April 11, with publication of a joint investigation by California Watch and the San Francisco Chronicle that detailed candidate Whitman’s extensive ties to Goldman – as investor, corporate director, and recipient of both insider stock deals and campaign donations.

Five days later, the Securities and Exchange Commission charged Goldman with fraud, alleging that Goldman bankers sandbagged European banks that wanted to invest in U.S. home mortgages by deliberately creating financial instruments based on toxic mortgages that were doomed to failure. The banks lost more than $1 billion. Goldman has denied wrongdoing. Congressional hearings are this week.

The combination of the California Watch/Chronicle report and the fraud charge propelled Whitman’s ties to Goldman into Topic A in the governor’s race. From the left, Whitman was flailed by two Democratic independent expenditure campaigns for her connection to a bank that allegedly profited from the U.S. real estate collapse and ensuing recession. From the right, state insurance commissioner Steve Poizner, trailing badly in polls, also hit Whitman’s Goldman connection.

The Saturday LA Times piece said Oakland’s foray into the Goldman-created interest-rate swaps is costing the cash-strapped city about $5 million, because interest rates went down rather than up. The Times suggested Brown was partly responsible for the mess because in 2005, after he was elected mayor, city finance officers left the swaps in place rather than terminating them. Brown had appointment authority over the city officials who actually supervised city borrowing in Oakland.

Also, Brown’s sister, former state treasurer Kathleen Brown, now works for Goldman, the Times pointed out.

Brown’s spokesman, Sterling Clifford, said Whitman’s concern for taxpayers was bogus.

“Whitman wants to blame everyone else but won’t own up to her own deep entanglements with questionable practices at Goldman,” he said.

To read entire story, click here.