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Lead Firms and Sectoral Resilience: How Goldman Sachs Weathered the Global Financial Crisis

—Michael A. Urban, Vladimír Pažitka, Stefanos Ioannou and Dariusz Wójcik—

The concept of economic resilience finds its roots in resilience thinking in ecology. As a result, much of the resilience literature tends to assume that sectoral and regional resilience are determined by the characteristics of regions and sectors such as their productivity, their labor skills or their policy regime. In this paper, we take a different approach and postulate that under certain conditions, the resilience of industrial sectors, and indeed whole socio-economic systems, can be reflexively tied to the agency and power of lead firms. We substantiate our argument through an in-depth study of the role of Goldman Sachs, a leading US investment bank, in shaping the resilience of the US financial sector in the lead up to, during, and out of the global financial crisis.

We present our analysis for three key periods. In the first part, we show that Goldman’s pre-crisis rise to prominence (1999 to 2006) is linked to the firm’s strategic move to aggressively securitize and trade in the booming US real estate market. As such, Goldman Sachs contributed significantly to the build-up of systemic market risk. Evidence suggests that in 2006, when legislators, regulators and the rest of the US securities industry seemed fast asleep at the wheel, Goldman showed remarkable foresight in spotting early signs of the imminent collapse of the US real estate market. As a result, the company was swift to offload much of its exposure to subprime securities in a move that would spark much controversy on the legality and morality of investment bankers selling securities they deem worthless.

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