Can Goldman’s Former Top Mortgage Bond Salesman Revive Connecticut’s Moribund Economy?

Nutmeggers unleashed a collective groan last November when longtime telecommunications executive Ned Lamont defeated his Republican challenger to secure another four years of Democratic rule in Hartford.

His predecessor, Gov. Dannel Malloy, may have helped replenish the state’s rainy-day fund and improve some other aspects of the state’s finances, but he presided over a period where several major corporations moved their headquarters out of the state (including GE, which left Fairfield County for Boston, and Aetna, which nearly left Hartford before CVS decided otherwise at the last minute).

Over the past decade, economic growth in Connecticut has been stagnant, ranking among the worst-performing states (only Alaska and Wyoming were worse). The state’s population has shrunk by roughly 22,000 since 2014 as young educated workers left for more trendy urban enclaves like New York City and Boston, which also featured stronger employment prospects.

Now, Lamont is trying to apply his ‘business background’ to try and fix the state’s biggest problems – i.e. the fact that it’s not a very attractive destination for businesses. In the past, the state has relied on promises of preferential tax treatment in exchange for promises to create X number of high-paying jobs. Often, companies’ fell short, but were never made to pay the state back.

So, Lamont is trying a new tack: He’s surrounding himself with prominent figures from corporate America, including former PepsiCo CEO Indra Nooyi, who is leading the state’s effort to recruit more businesses.

Among those recruited by Lamont is David Lehman, a former Goldman Sachs partner who played an interesting role in the run-up to the financial crisis. As the head of Goldman’s mortgage finance group, he instructed his people to clear all of the toxic CDOs off the bank’s books just before the bottom fell out of the market.

Lamont recently appointed Lehman to lead Connecticut’s Department of Economic and Community Development, and also named him a senior economic advisor.

Though we doubt the character was based on him, there are definitely some eerie similarities between Lehman’s crisis-era exploits at Goldman and the story arch of Kevin Spacey’s character in “Margin Call.”

After the crisis, Lehman was dragged in front of a Congressional committee to try and explain his involvement in the sale of one specific tranche of CDOs called “Timberwolf.”

The issue became notorious after one former Goldman executive described it as “a shitty deal” in an email uncovered by Congressional investigators. The Senate Permanent Subcommittee on Investigation’s 2011 report on the financial crisis found that Lehman instructed his people not to give clients any written insights into how Goldman was valuing its securities.

Though he was never accused of wrongdoing, Lehman was grilled at a committee hearing back in 2011, and lawmakers in Connecticut raised the issue again during his confirmation hearing in Hartford.

To this day, Lehman insists that he didn’t know the product was worthless when he sold it to the bank’s clients.

“Any suggestion that I knew a product was going to be worthless and subsequently sold it to a client is completely and wholly untrue,” he said at the hearing. Reducing Goldman’s exposure to subprime mortgages was prudent risk management, he said. And, he said in an interview, that Goldman provided as much information as it had on prices in a volatile market.

“I’ve always conducted myself honestly and transparently and acted in good faith with all my dealings at Goldman Sachs,” Lehman said.

He was confirmed by a vote of 28 to 8.

However, nearly everything we have learned about Goldman’s corporate culture in the years since the crisis would suggest otherwise.

Still, Lamont and his friends in Hartford insist Lehman is “the perfect guy” to look after the interests of the people of Connecticut.

Lehman, known at Goldman as a convener and connector, is the “perfect guy” to bring Democrats and Republicans, business and labor together and sell the governor’s vision, said Susie Scher, global head of Goldman Sachs Financing Group.

“He’s a guy who can sit in the middle of disparate folks with differing objectives and bring them together because they all like and respect him,” she said.

Lehman’s approach to economic development centers around attracting more young people and businesses to Connecticut’s main urban centers: Hartford, New Haven, Bridgeport and Stamford.

And, as it so happens, his strategy for pulling this off relies heavily on the “Opportunity Zones” initiative that was included in the Republican tax plan (and which liberals have criticized as a hand-out to wealthy developers wrapped in the guise of helping the poor).

Twenty nine of the state’s 72 opportunity zones are in its four largest cities (mentioned above).

Lehman has lived in Greenwich for a decade, and thus believes he understands the state’s problems and how to fix them.

But one economist quoted by Bloomberg criticized Lehman’s tax-incentive plan as “pretty myopic,” arguing that companies prefer to receive tax breaks before they create jobs, and that instead of accepting the state’s deal, can easily just relocate somewhere more favorable.

The bottom line is this: As most Connecticut residents probably understand, all of Lehman’s (and the state’s) efforts will likely be worthless if they fail to accomplish one critical goal: Improve travel time to NYC on MetroNorth.

Lamont has supposedly made this a priority, and has set a lofty goal of cutting travel time to Manhattan in half. But if Connecticut wants to burnish the reputations of its cities as practical places for young people and companies to live and work, it will need to drastically improve commute times to Boston and New York.

If Lehman can’t offer companies access to more of the New York metropolitan area’s vibrant workforce, then companies won’t have a reason to come to Connecticut, no matter how many handouts you offer.