Goldman Sachs: A Case of False Equivalence


One of the more persistently perverse practices of MSM journalism is the “false equivalence fallacy,” a technique too often seen in political stories, when reporters aim for even-handed balance but end up badly misleading readers.

A case study is the L.A. Times Saturday Sunday story, which posed “a phony evenhandedness,” as Ruth Marcus of the Washington Post once described false equivalence, between the connections of Meg Whitman and of Jerry Brown to the scandal-tainted investment bank Goldman Sachs.

A false equivalence fallacy occurs when someone falsely equates an act by one party as being equally egregious to that of another without taking into account the underlying differences which may make the comparison patently invalid.

In presenting an apples-and-oranges framework about the Goldman Sachs issue in the California governor’s race, the Times recalled political stories from the 2004 presidential race that matched unfounded charges about John Kerry’s record in Vietnam, where he won three Purple Hearts, with still-unanswered documentary questions about the service of George Bush in the National Guard or, more recently, cable TV shows that set up on-the-one-hand-on-the-other “debates” that include whack job “birthers” who charge that Obama was not born in the U.S.

Sometimes, attempts to present “balance” using the thin thread of commonality — e.g. Goldman Sachs — are wholly misleading. There really is an unbalance of connection and/or impropriety. One thing is actually more damning than the other and they cannot and should not be equated. This is a false equivalency.

Whitman’s links to Goldman Sachs are primary connections, which directly benefited her financially, both personally and politically; Brown’s are  secondary, at best, involving his sister’s employment at the firm and a complex policy decision about bond financing interest rates in Oakland, which was made a year before he was elected mayor there, which appears actually to have benefited the city during much of his tenure, and over which he had no direct control anyway.

Yet the Times story – online hed: “Whitman, Brown have ties to Goldman Sachs” – sends a clear message that these are matters of equal political weight, at a time when the bank has been charged with fraud by the SEC. Let’s look at the details:

Whitman’s connections to Goldman have been chronicled in detail by Lance Williams and Carla Marinucci.

1-Spinning. As CEO of eBay she steered millions of her company’s business to Goldman, a period in which she also engaged in “spinning,” a now-illegal insider stock deal in which the investment bank paved the way for her to buy early shares of hot IPOs. She was named in a congressional investigation of the practice and forced to return money she made from the deals to eBay after shareholders sued her. Her explanation: “It wasn’t illegal at the time.”

2-Directorship. Whitman was paid the equivalent of $475,000 in cash and stock options when she sat on Goldman’s board of directors for 15 months in 2001 and 2002. Among other actions, she served on the compensation committee, when it approved huge bonuses for Goldman’s current CEO, Lloyd Blankfein, and its previous chief executive, former Treasury Secretary Henry Paulsen, who oversaw the era of credit default swaps and consolidated debt obligations which is now the focus of the SEC fraud suit.

3-Contributions. Whitman has received at least $105,500 in contributions from Goldman executives to her campaign for governor, according to the Williams-Marinucci investigation.

Brown’s connections to Goldman, as set forth by Michael Rothfeld in the LAT:

1-Family. His sister, former state Treasurer Kathleen Brown, has worked for the bank since 2003, a family factoid that gains no elaboration, or further traction, in Rothfeld’s story as reflecting critically on Jerry Brown.

2-Oakland. A year before Brown took office as mayor, city officials did a deal with Goldman, known as an “interest rate swap,” in order to “guarantee Oakland stability in its debt payment,” according to Rothfeld. City officials renegotiated it in 2003 (before Kathleen went to work for Goldman BTW), paid off Goldman’s debt in 2005, but left the interest deal in place because canceling it would have cost $15 million, which was then considered a bad deal for the city.

At the time, Brown’s involvement consisted of a) being the non-voting president of the Oakland Joint Powers Financing Authority, which handled the negotiation and b) appointing the administrator in charge of borrowing for the city.  The Times story never even hints that Brown had anything to gain from the deal, even if he had had authority over it, and completely equivocates on the broader issue of whether or not it’s been a good deal for Oakland.

Today, because interest rates plummeted amid the Wall Street meltdown, the deal with Goldman is costing Oakland about $5 million a year, the story notes, but then adds this: “Oakland and Goldman officials say they believe the swap has benefited Oakland overall, though they provided no statistics to show that.”

Uh, so what exactly has Brown got out of his ballyhooed-by-the-Times  “connections” to Goldman Sachs?

Despite the total false equivalence between eMeg and Crusty’s* dealings with the investment bank, Rothfeld gave Whitman flack Tucker Bound a free hand to muddy the waters on an issue that threatens Whitman, allowing him to spin the non-event of Brown’s Goldman ties into the biggest scandal since Teapot Dome: “No matter how you look at it, Jerry and his sister were on both ends of a bad deal for taxpayers, and Goldman Sachs pocketed millions.”


Fortunately for the Times, business columnist Michael Hiltzik presented a clearer-eyed view of the matter in a Sunday same day piece that recaps Whitman’s personal connections to the bank and drills down on the noxious “spinning” issue.

Yet the issue here isn’t anyone’s family connections or routine investments but Whitman’s acceptance of preferential treatment from a firm angling to do business with her employer…

As for her claim that no one ever suggested there was anything untoward about preferential allocations, not so. Financial regulators had been warning brokers for years that it was wrong to hand out hoards of IPO shares “to reward persons who could otherwise direct business to them.” Although that rule was directed at the brokers, not their customers, surely Whitman understood the concept of aiding and abetting. To avoid further confusion, the Securities and Exchange Commission later spelled out the rules: Offering such deals is now illegal.

And thank you for that.

P.S. For further understanding of what’s wrong with “spinning,” see the definitive Calbuzz piece by David Shapiro, a specialist on financial fraud at the John Jay College of Criminal Justice at the City University of New York.

* For the record, Calbuzz recognizes that the Simpsons character Herschel Krustofski, AKA Krusty the Clown and the Maitre d’ of Glee is spelled with a “K.” Our Department of Etymology and Copyright Infringement  is studying whether it would be appropriate to alter the spelling of “Crusty the General.”

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There are 8 comments for this post

  1. avatar patwater says:

    Not to denigrate your actual point, but Brown (aka Crusty the General) as Crusty the Clown is simply beautiful. And people say extended metaphor is going out of style.

  2. avatar PeterSchurman says:

    Even Republican Rep. Mike Oxley called Whitman’s ties to Goldman “corrupt”. Whitman later paid $1.78 million to settle charges from eBay’s own shareholders.


    Details at: http://bit.ly/gMegSFChron

    Join our campaign for California:
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  3. avatar jskdn says:

    Just because they may not be equivalent doesn’t mean that both stories aren’t worth covering. Jerry Brown may have been the non-voting president of the Financing Authority but according to the co-author of the Chronicle article, writing on the California Watch blog, he had “appointment authority over the city officials who actually supervised city borrowing in Oakland” and his sister was in charge of municipal financing for Goldman Sachs on the other side of the deal. So there are two issues. One is his involvement with the deal and any potential conflict of interest. I would hope that reporters would ask to see all the documents, reports and correspondence available from that time and interview the voting members. There may be nothing but you don’t find that out by not looking. The other is why the interest rate swap, which served as a hedging device to the city’s debt, was left in place after the debt was retired. Should municipalities be making what became just a bet on the direction of interest rates detached from it use regarding city obligations? $32 million and counting is what the Times article said the union claimed as its cost.

  4. avatar SezMe says:

    You guys have been spending too much time with Photoshop.

  5. avatar rpmcestmoi says:

    Excellent piece. Thanks for the clarity.

  6. avatar Ave7 says:

    Great reporting guys! Now can someone please take Michael Rothfeld to the woodshed? His story is a yellow journalism smear of innuendo and spin. “Right before” Jerry Brown became Mayor, and “right before” Kathleen Brown went to work for Goldman, a deal was cut that may or may not be bad for the city?

    That’s what you’ve got, Mr. Rothfeld? That’s what you based an entire story on, and the Los Angeles Times published? Those are “Jerry Brown’s ties” to Goldman?

    Absent any proof that Mr. Brown in any way endorsed or benefited from this deal, or that Ms. Brown was even aware of this deal before last Saturday, the scope of the story should have been confined to the embarrassingly shallow move by Whitman to distort her record of dubious activities with Goldman. It should have been written by a seasoned political reporter who understands the importance of exposing, rather than facilitating, vacuous campaign spin.

    Rothfeld should be ashamed for having written this piece of trash, and the LA Times should be ashamed for publishing it. But now the damage is done, and we can look forward to seeing Mr. Rothfeld’s story splashed across our TV screens all summer and fall, in ads which will singularly highlight only Jerry Brown’s “ties” to Goldman, while Meg-lomaniac and her campaign team sip champagne and laugh heartily, toasting the gullibility and maliability of Michael Rothfeld.

  7. avatar Mobius Trip says:

    Thanks, Ave7 – couldn’t have expressed it better than you did.

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