Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Goldman Sachs (GS) obviously has lost a lot of allure and cache on Main Street the past few years. In terms of “inside baseball”, almost every month I read a Bloomberg story on how it has done secret deals that “ripped” off a local municipality or special interest group or heck… country (i.e. a secret deal with Greece quite a few years ago that blew up). [Here is one on the energy market in Texas, which was deregulated – supposedly to increase competition, but instead prices went up – with Goldman in the background] Some of the details of these deals are amazing, but incredibly lucrative. They seem to always take advantage of the relative lack of financial acumen of the other party. If you put a local city board against Goldman – you know one of the two is going to get fleeced, and it’s not going to be the guys who live and breathe money. This speaks to many who consider finance as a whole a leach on society (or as some have called Goldman – a vampire squid), even though it’s really a few (mega) actors who do these sort of things.
Today’s very high profile ‘resignation’ op-ed piece in the NY Times will only fan the flames – even some inside this machine are disgusted by what they do. Somewhere Matt Taibbi has to be smiling. I’d recommend the full read..
TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
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What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
