Goldman Sachs could roil California governor race

As Wall Street watches to see what happens as the US government faces off with Goldman Sachs, the nation’s largest investment bank, fallout is expected to negatively impact Meg Whitman, the billionaire Republican candidate for California governor, say a host of political analysts.

If not handled correctly, the scandal could also injure Jerry Brown, the only major Democratic candidate in the race.

The former CEO of eBay announced her candidacy last September and has recently commanded a compelling lead in the polls against her primary rival, insurance commissioner Steve Poizner. Ms. Whitman sat on the board of Goldman Sachs before resigning seven years ago in a controversy over how she and other executives received shares in initial public offerings. Campaign finance records show she held stakes in Goldman and Goldman-managed investment funds after resigning.

Her surge in the California polls has occurred as she has barraged TV airwaves with $46 million in ads – on track to spend more money than any candidate in state history – that tell voters that the ailing state needs to “be run like a business.” She touts her own history as CEO of eBay as evidence that she is the candidate that can turn the state around.

That message, political experts say, is precisely why she will have much difficulty steering clear of negative fallout from the Goldman Sachs fraud case.

“Voters have a very legitimate question to ask of Whitman, which will be difficult for her to answer,” says Barbara O’Connor, director of the Institute for the Study of Politics and Media at Sacramento State University. “On the one hand, she needs to distance herself from the scandal, on the other hand, it happened on her watch. Given her campaign strategy, how can she tell voters she didn’t know what was going on?”

Both of her competitors need to be careful in how they exploit vulnerability, say several others. Mr. Brown's sister, Kathleen, is currently a Sachs executive.

“Because of his sister’s position, Jerry Brown has to be very, very careful in how he chooses to bash Meg about this,” says Sherry Bebitch Jeffe, a political scientist at the University of Southern California. “He would be better off letting some independent expenditure committee pick up the issue and expose it than to do it himself.”

Mr. Poizner, who has recently narrowed the gap between himself and Whitman from 40 to 20 points, could exploit the Sachs relationship in his June Republican primary, but only in ways that could hurt her against Brown in the November general election, says Dr. Jeffe. “Does he have enough time to close that gap and can he?” asks Jeffe. “It’s a dangerous and tricky call.”

How much damage Whitman will suffer depends on how close the public continues to pay to the scandal, what unfolds in the press, and how Whitman – noted for the opposite of transparency in the press – handles it, say experts.

“Whitman has to demonstrate how she was not one of the black hats at Goldman Sachs. In other words, she’ll have to explain herself – not an enviable position for a candidate,” says Steven Schier, a political scientist at Carleton College in Northfield, Minn.

Some analysts say Whitman’s best bet is to lay low, say very little, and hope that other events take the spotlight.

“The public has a very short-term memory, so important events today will be barely remembered by November,” says Robert Stern, president of the Center for Governmental Studies in Los Angeles. “Far more important than Goldman Sachs will be the ballot measures on the November ballot: the repeal of AB 32 [on global warming], and …. marijuana legalization.”

But the Brown campaign feels the time frame will work in its favor.

“I think by November, the voters in California will know all about Meg Whitman's financial dealings with Goldman Sachs,” says Sterling Clifford, spokesman for Jerry Brown for Governor. “And they will hold her accountable for them.“

For its part, the Whitman camp doesn't see it as a major issue.

"The Democrats' attempt to make Meg culpable for the excesses of Wall Street is a huge leap, considering she was on a single bank board for 15 months nearly 10 years ago," says Tucker Bounds, spokesman for the Whitman campaign.