Goldman Sachs (GS) CEO Lloyd Blankfein, pictured above, bit the hand that educated him. He loves to recount how he rose up from the mean streets of Brooklyn and won a scholarship to Harvard College and then on to its law school. But Blankfein turned around and bit that hand to the tune of $500 million when in February 2007, Harvard found itself on the wrong side of a synthetic CDO bet. Goldman Sachs (GS) CEO Lloyd Blankfein loves to recount how he rose up from the mean streets of Brooklyn with a scholarship to Harvard College and then went on to its law school. But Blankfein turned around and bit the hand that fed him to the tune of at least $100 million when, in February 2007, Harvard found itself on the wrong side of a synthetic CDO bet with Goldman.

I can't help but be impressed how Lloyd pulled himself up by his bootstraps. According to The New York Times, he grew up "in the Linden Houses in East New York, Brooklyn." Not being familiar with New York economic geography, I am going to guess that his Linden Houses abode was not as swank as the enormous $26 million apartment he lives in on the edge of Manhattan's Central Park.

Scholarship to Harvard

Blankfein's father worked in the post office and he entered Harvard on a scholarship at 16 and graduated in 1975. From there it was on to Harvard Law, work as a tax lawyer and rejection from Goldman Sachs. Instead he joined gold trading firm J. Aron. Goldman bought it in 1981, and Blankfein came along for the ride. He took over as CEO of Goldman 25 years later in June 2006 from Henry Paulson, who left to become U.S. Treasury secretary.

More is expected from those to whom much is given. And Blankfein has certainly been given the best education that other people's money can buy. But his employer, Goldman, flipped that ditty on its side. That's because as far as Blankfein and Harvard are concerned, from whom much was received, even more was taken.

How so? Goldman bet that mortgages would default while Harvard gambled that they'd keep paying. In February 2007, while Goldman made a nice profit, Harvard was among those on the losing side of the trade -- forfeiting a portion of the $500 million of losses charged to four parties who wagered that the mortgages wouldn't default.

Good for Us, Bad for 'Accounts'

Goldman's response? According to the Boston Globe, in a Feb. 14, 2007, message on the plunge of sub-prime mortgages, Goldman executive Daniel Sparks wrote to colleagues including Blankfein, "That is good for us position-wise, bad for accounts who wrote that protection,'' citing Harvard and three others. Harvard wouldn't confirm the Boston Globe story to DailyFinance, but spokesman John Longbrake did say that the investment in question "was deliberately unwound and was part of an investment strategy that is no longer pursued by the management company."

The Boston Globe also reported that the Harvard endowment, run by Harvard Management Corp., took on massive risk before the market meltdown of 2008. "The school in fiscal 2008 lost 27% of its $37 billion endowment and another $1.8 billion in operating cash because of bad investments," The Globe said. The Ivy League school also paid $500 million to get out of failed interest-rate swaps, the newspaper reported.

It looks like Blankfein took a nice chomp out of the hand that helped lift him out of the Linden Houses government "projects." To be fair, of the $240 million Bloomberg News reports that Goldman paid him over the last decade, Blankfein has generously donated $2.735 million to Harvard, or 0.55% of the $500 million that Harvard and three other Goldman clients lost in their bad sub-prime bet against Goldman.

Who's smiling now?

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