NYTimes Op-Ed: Why I Am Leaving Goldman Sachs

I thought maybe Matt Taibbi had a story at the ready, but his rip-you-off bank piece is about Bank of America. Actually, there's a line in here that, to me, explains a lot about why none of these bankers is rotting in a jail cell right now.

http://www.rollingstone.com/politics/news/bank-of-america-too-crooked-to-fail-20120314

They're in deep trouble, but they won't die, because our current president, like the last one, apparently believes it's better to project a false image of financial soundness than to allow one of our oligarchic banks to collapse under the weight of its own corruption.

My belief has been that the reason the Justice Department has held back prosecutions is because these banks were, and still are, sicker than we want to believe (though the Taibbi piece details, as others have, how financially ailing Bank of America really is). Even breaking up these banks into smaller units would reveal the stink.

 

Right. I don't know if there's a moral component -- I think there is, based on the testimonials about how "Wall Street" and "Liars' Poker" had the exact opposite effect of their intentions and actually turned out bankers who were more lustful of money instead of less. But the new rules have created separate and usually contrary goals for the banks and their clients.

Sounds like a system failure to me, one that should be addressed through regulation or at least vigorous prosecution based on the existing laws. But that's a bigger argument than just Goldman.

 

It's more about risk. Partners were less willing to take a risk when they had skin in the game.

 

Employees get to extract short-term profits without taking on the long-term risks (here, reputation). Your points about Goldman shares going up and being a "buy" prove nothing--we don't have a counterfactual to compare it to.

In any case, even if accepting your arguments the employees and the owners have aligned interests, I'd say the shift to the public matter still changed the culture. Under your model, public shareholders have different interests than an owner that has most of his wealth tied up in the firm would--they only care about the short-term.

 

To simplify, I'd say this:

Partners care about the long-term. If shareholders also care about the long-term, this occurs because the change in the principal-agent relationship increases monitoring costs, etc--thus employees can benefit in the short-term at the expense of the long-term health of the company. Further, even if shareholders don't care about the long-term, this occurs because the principle now has different objectives than a partner would.

 

He'll be giving back all the money he made while working for that despicable company, right?

 

He will, and just as quickly as any one of us would, i.e. never. The distasteful portion is the author's newfound ethics when it is clear that the institution and those in it have been doing these things he now holds as abhorrent for years.

That said, one has to admire the Resumegnation-like quality of it.


This guy would be proud.

 

More along those lines of thinking here:

http://www.forbes.com/sites/nathanvardi/2012/03/14/a-goldman-sachs-executives-midlife-crisis/

Also, great line at the end:

If what Smith is saying today is true, then the biggest problem remains the “muppets.” Not Kermit or Gonzo, but the investors that Smith claims continue to buy garbage from Goldman. Until those clients start to take responsibility for themselves, Goldman will remain incentivized to sell stuff to them.

One of the root causes of the mortgage nightmare, the CDO disaster, Madoff, and Stanford, was investor gullibility. Today, those investors like to blame the banks and the rating agencies for their roles. Goldman Sachs has paid a record $550 million fine to settle SEC charges it misled investors in a product it created. Its execs have been paraded in front of Congress and berated for literally selling shit. If those investors are not already entering into Goldman deals carefully now, they never will.

Although the biggest problem is still that Goldman Sachs is a bunch of thieves. Except in this case, instead of having to beat people up for their money, they have a large portion of easy marks ready to hand it over.

As long as a company gets rewarded (by shareholders and clients) for this behavior, why should it bother to stop?

 

I'm sorry, but you have to be an Ayn Rand-esque free marketeer, and quite an extreme one, to think this is true. It's so easy and fashionable to go revisionist and say everyone should have seen this coming. But the fact is this was one hellaciously complicated scheme, perpetrated by people who really truly have always had a legal responsibility not to destroy the economy and did it anyway. The most sophisticated investors in the world didn't know WTF was happening when it was happening. Hell, even Goldman itself didn't catch on for a couple of years, then had to scramble like hell to find Deutsche Bank and AIG and others to offload their crap.

 

In the stories I've written about how to spot a Ponzi scheme (or not to be ripped off as an investor), the same advice comes through all the time. Do not trust someone guaranteeing returns. If it's too good to be true, it is. Don't let greed overtake good judgement. Also, watch out for schemes that seem to target one particular group of people (say, based on ethnicity or religion). I've heard horror stories about Ponzi schemes pitched by church members to other church members.

No doubt, there were well-intentioned people who got caught up in Madoff, et al, and they're not 100 percent to blame for what happened. But I agree with the writer's point that now, knowing what you know about Goldman Sachs, why would you willingly give it your money?