the finance industry / wall street

The ex-Goldmanite op-ed that's lighting up the blogosphere:

http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?hp

http://www.huffingtonpost.com/mark-gongloff/greg-smith-goldman-sachs_b_1344716.html

this is not just a Goldman Sachs problem, but a Wall Street problem. Goldman was not alone in selling clients CDOs stuffed with shaky subprime mortgages, for which it paid the SEC $550 million a couple of years (and two Greg Smith bonuses) ago. Nor was it alone in pumping Russia full of debt in the late 1990s, nor was it alone in parachuting out of the market ahead of its clients in 1929.

Of course, this won't change the view of Republicans and the likes of Geithner and others.

http://www.thedailymash.co.uk/news/society/why-i-am-leaving-the-empire%252c-by-darth-vader-201203145007/

"We used to make things in this company. Like synthetic credit products. And the clients liked them!"

like i said in another thread, if you started at Goldman Sachs when Henry Paulson was running things and you're looking at that as some sort of golden era of ethics and integrity, then you've wearing some pretty strong blinders or have a strange definition of ethics and integrity.

I'm slightly sympathetic to him because he's from a foreign country - like I could maybe see him arriving here and buying everything about ~america~ without too much skepticism

it is good that someone who was on the inside is taking a few good kicks at an obvious villain in a relatively well-respected and well-read forum. also, i don't want to jump on him b/c i'm positive that as we speak there's an army of well-paid flunkies working overtime and at Goldman Sachs's behest to tear him down as we speak.

that said, there is a certain naivete to his column.

plus, i hope the he's got a nice stash of "fuck you" money tucked away somewhere ... or pictures of some Goldman Sachs bigwig doing something unspeakably vile (other than what they've done to their investors, the American taxpayers or the world-at-large).

discussion of his bronze medal in ping-pong is a nice touch -- suitably egomaniacal yet somehow naive-seeming as well

yeah, they have to show that they retain the common touch even though they're still smarter-and-more-accomplished-than-pathetic-little-you-will-ever-be.

http://deadspin.com/5893181/bronze-medal-ping-pong-god-bravely-resigns-from-goldman-sachs

dude was UK based, though I gather GS London culture was about the same as New York's.

only for the last two years of his career

Ah right, good catch.

this story reminded me of this bit from a a long Goldman article the Times (UK) did a couple years ago:

[Brian Griffiths] is one of the bank’s international advisers and also acts as company pastor. ‘I had one guy who came to see me — I thought about his career — but he wanted to talk about the morality of banking. That was a long conversation,’ Griffiths recalls.

lol The Church of Goldman Sachs

a long Goldman article the Times (UK) did a couple years ago

link?

oh right http://www.infiniteunknown.net/2009/11/08/goldman-sachs-ceo-lloyd-blankfein-im-doing-gods-work/

the author's a little fawning but there aren't many interviews with Blankfein & co. so it's a decent read

http://www.jackizehner.com/2012/03/16/why-i-left-goldman-sachs-version-two/

first woman partner at GS speaks about the nyt op-ed

strange how rosy the glasses get when reminiscing huh

A not-too-sentimental GS reminiscence:

http://www.financeasia.com/News/294239,goldman-sachs-is-unveiled.aspx

This one seems pretty balanced to me.

IDK I think maybe people have started to read Matt Taibbi a little too literally? It's possible that things actually seemed better at one time at GS, or that not every investment banker and trader and manager in every department had an alter to satan on his desk at which he promised to screw over clients in every way possible.

GS is the Duke basketball team of Wall Street sports.

xxp I worked as a bond salesman on Goldman’s London trading floor in the early 1990s.

according to michael lewis's liar's poker, bond traders are the worst of the worst right?

I feel like every book about every kind of trader makes that claim

idk - I think the rogue's gallery in http://en.wikipedia.org/wiki/When_Genius_Failed:_The_Rise_and_Fall_of_Long-Term_Capital_Management are all former bond traders

Here's a more critical look: http://epicureandealmaker.blogspot.com/2012/03/hypocrisy-as-business-model.html

Everyone knows there are sophisticated clients and "sophisticated clients." Your client trust shtick is tailor made to fleece the latter.

This reminds me of the old adage: If you don't know who the sucker is at the table, then it's probably you.

that is one of my favorite blogs, O.Nate.

Everyone knows there are sophisticated clients and "sophisticated clients." Your client trust shtick is tailor made to fleece the latter.

This point needs to be made more. There's a HUGE difference between a hedge fund and an icelandic municipal pension fund. It's basically the larger scale version of why boiler room guys love lawyers and doctors as clients -- professionals with a high estimation of their own intelligence and some real money to invest, but whose professions actually don't require them to have any financial or investing acumen, so they're easily suckered.

you can actually reverse that from the perspective of lawyers and doctors too

Anyway I don't think Goldman is doing anything that different than anyone who trades in specialist merchandise (be it antiques, art, or whatever) just that they do it on a larger scale. If you don't know anything about antiques and you go shopping for something, you're likely to overpay, because only an expert really knows how much these things are worth. It's nice to think the salesman will sell it to you for what it's really worth, but perhaps a bit naive?

yup, in fact art dealers (and probably investment bankers) like to go after newly minted celebrities, athletes who just won their first championship, etc.

difference being that GS hedges against their clients with their client's money

Not sure what that means, unless you're talking about margin?

Actually, something I kind of don't get about investment banking: once a bank is both selling and trading for its own account, isn't it almost by definition betting against anything it sells? Like, GS has investment product X; if it thinks X is such a good investment, why not hold onto it? I'm not talking about underwriting, which is a huge part of their business, but investments where GS actually takes a position and then later sells the position to a "client" -- why the fuck would you ever want to buy what they're selling in that circumstance, if GS is really so smart?

I mean I guess there are other reasons to sell things -- liquidity, short-term versus long-term, appetite for risk, etc. But the whole thing still sounds like a very funny business model to me, and this would be equally true for any investment banking firm.

I mean this Nate:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6907640/Goldman-Sachs-denies-betting-against-its-clients-on-CDOs.html
http://www.bloomberg.com/news/2011-04-14/goldman-traders-tried-to-manipulate-market-in-2007-report-says.html

GS claimed the shorts weren't a hedge, but people like Matt Taibbi don't believe that.

I thought the whole issue there was that they were trading against the clients with their own (ie., Goldman's own) money - not with the clients' money. If I was to put that in terms of the antiques dealer analogy, that would be more like selling a counterfeit antique - clearly wrong and illegal because it involves lying about the merchandise.

hurting, if gs feels like they have too much apple stock and owning more isn't worth the risk, and you feel like you don't have enough tech stocks and that position might be risky, both sides can gain. in theory it does not have to be a zero sum game.

I mean they can't own everything in the world

Don I think you are getting confused, although that bloomberg article itself is somewhat confusingly written. I believe if they WERE a hedge, that would be more defensible, since any investment bank would hedge its positions to "reduce risk." The problem is that if they weren't a hedge but a "bet," at least according to the critics making that argument.

Uh, well I was making a point badly (although I sense you know what I was trying to say.) My bad.

From afar, selling securities to a client and then turning around and shorting those securities (as a hedge against their own long mortgage portfolio) isn't quite the level of sophistication in most specialist merchandisers. It's that level of speciality I think that separates traders in a hedge fund from an antique dealer. Seems like a lot of the positions that GS takes are with pretty complex instruments.

That's a good point. Antiques dealers can't go short, afaik. So it's a bit of a different ballgame. Also, obv much bigger stakes are involved. I was mainly talking about the client/counterparty distinction and how it's a grey area.

http://www.reuters.com/article/2012/03/19/us-goldman-nuns-idUSBRE82I0KW20120319

ha, when i saw "goldman nuns" in the url i thought itnwas a reference to "some get shot locked down and turn nuns/cowardly hearts and straight up shook ones." like greg smith had "turned nun" #morningthoughts

stop us before we kill again: http://www.cnbc.com/id/47018347

Ok this isn't exactly about "the finance industry" but I have been puzzling over the ideas of David Graeber, and I don't understand this:

http://inthearena.blogs.cnn.com/2011/07/05/david-graeber-studied-5000-years-of-debt-real-dirty-secret-is-that-if-the-deficit-ever-completely-went-away-it-would-cause-a-major-catastrophe/
The current financial system – based on central banks – really goes back to 1694 when a group of London merchants made a loan to the King of England to fight some war in France, and he gave them the right to call themselves "the Bank of England" and loan the money he owed to them to other people in the form of bank notes. That's what British money actually is - an IOU from the king, an uncashed check.

What I am missing in this formulation is how did the Bank of England "loan" "debt"? Are they lending the privilege of being owed money? Normally I thought debt was sold, not lent.

Let's use fantasy numbers, just to make the idea emerge more clearly.

We'll say the Bankers loan the King a million gold coins, each worth "ten" and he agrees to pay them back "twenty" for every "ten" he recieved. In one scenario, the Bankers just sit around waiting for their million "twenties" to dribble back in from the Exchequer, until they're all paid. Fine. They will make 100% profit. But they have to wait for it until the King coughs it up.

The smart Bankers realize that the King's promise to pay back is worth something. People trust it, sort of. They decide to monetize this promise to repay by dividing it up into twenty million notes, each worth "one". This is what the King promised, after all. Now they turn around and make loans, but instead of lending gold coins (the King has most of them atm), they lend these notes. They are as good as gold, because hey the King would never default, amirite?

The clever bit is that they lend all these "good as gold" notes at interest and announce they will take either gold coins or these notes back as payment for the principal and the interest. History ensues, to much hilarity.

shareholders are suing jamie dimon over his compensation package

Isn't that Citigroup/Pandit?

in any event I liked this exchange from an interview with a hedge fund director:

Q. What do you think in general about the influence of people with your means on the political process? You said shame on the politicians for listening to the CEOs. Do you think the ultrawealthy have an inordinate or inappropriate amount of influence on the political process?

A. I think they actually have an insufficient influence. Those who have enjoyed the benefits of our system more than ever now owe a duty to protect the system that has created the greatest nation on this planet.