Goldman Director resigns and lets it all hang out

[FinanceDude]

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Originally Posted by nun Anyway I decided that the company culture was not for me and took up a job offer I had at NASA. When I resigned the CEO asked why I was leaving, I said "Given a choice between fish sticks or lobster, which would you choose?" I could almost smell the smoke of me burning my bridges.

So, NASA never did that in their requests for funding, stretch things a little?

[Gone4Good]

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Originally Posted by nun Whenever we buy a service there is a level of due diligence that we can apply, but we also hope to buy good honest advice, not be treated as a sheep to be fleeced. Car mechanics might rip off the customer in ways that are not exactly illegal, but are immoral, because of their specialized knowledge. Mr. Smith is just voicing his opinion that Goldman Sachs does the same.

And Mr. Smith is right.

But there are differences that are important

1) Goldman's clients are all sophisticated investors. They're playing in the Major Leagues and they know it. The folks facing Goldman on each trade are people like Bill Gross and Steve Cohen and Warren Buffett. Goldman's trading counterparties spend every day trying to take advantage of Goldman's mistakes. Do you think Warren's people tell Goldman everything they know when they execute a trade? Or do you think that Warren tries to disguise what he's doing and why he's doing it? Institutional trading ain't bean bag.

2) Selling a financial product isn't exactly like replacing a transmission. The mechanic knows whether the transmission needs to be replaced. Goldman doesn't really know for certain what the financial performance of any given investment might be.

Example: Go to our discussion on TRUPs here. Some folks view the risk return relationship in these securities favorably and others view them unfavorably. My preference is to avoid them, where clifp thinks they're OK.

If I'm a trader or sales person or research analyst at Goldman, should I not sell TRUPs to clifp if he wants to buy them (with the understanding that in this example clifp is Berkshire or SAC Capital)? If we have a client that wants to sell TRUPs, should I say we won't try to execute that trade because we don't think people should be buying TRUPs? If we decide to help our client sell his TRUPs, should we tell every potential buyer that we don't personally care for the risk characteristics of TRUPs? How do we balance the needs of our clients who want to sell TRUPs against the needs of our clients who want to buy TRUPs? Should we work to get the lowest price for the buyer or the highest price for the seller? Are we certain that we absolutely know the right answer? Is there a right answer?

It's easy for folks like Mr. Smith to press the hot buttons and confirm what everyone "knows" to be true. The reality is harder, with lots of grey areas between the blacks and the whites.

[Finance Dave]

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Originally Posted by Midpack No business can be successful long term in spite of their clients/customers, so in that sense it is true. Does that mean they put their clients above all else? Doubtful, but then what company does, there are trade offs. If Goldman is really acting in their own interests without any regard for their clients, it will catch up with them.

I agree

[nun]

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Originally Posted by FinanceDude So, NASA never did that in their requests for funding, stretch things a little?

Whoever does it, lying is not a quality I admire. At the highest levels NASA is political with all that goes with that, but at the operational level and within the science community honesty and objectivity are job requirements. Stretching the true is not part of my nature, which is why I became a scientist, although quantum mechanics and age make me believe less and less in objective truth; I would cut my old CEO a bit more slack now. Still the culture of Goldman is not one that I'd enjoy and the "look behind the curtain" Mr. Smith gives is instructive. The "muppets" comments are probably all you need to know about how Goldman sees it's cloth puppets clients

[Finance Dave]

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Originally Posted by nun Whoever does it, lying is not a quality I admire. At the highest levels NASA is political with all that goes with that, but at the operational level and within the science community honesty and objectivity are job requirements. Stretching the true is not part of my nature, which is why I became a scientist, although quantum mechanics and age make me believe less and less in objective truth; I would cut my old CEO a bit more slack now. Still the culture of Goldman is not one that I'd enjoy and the "look behind the curtain" Mr. Smith gives is instructive. The "muppets" comments are probably all you need to know about how Goldman sees it's cloth puppets clients

+1, although I'll stick up for the poster you responded to...as they said "stretch the truth" rather than "lie"...and I believe there is a difference.

I would not like that culture either...we certainly don't have that culture where I work. We sell B-2-B often (probably 80% of our sales), so we have savvy buyers too...and I hear every day in meetings that our job is to find ways to make them successful so that in turn we are successful.

[Gone4Good]

Keep in mind too, trading is a zero sum game. Analogies to other kinds of business don't really work.

The idea that Goldman and all of its clients are going to cooperate and trade together in a way where everyone "wins" is mathematically impossible.

[FinanceDude]

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Originally Posted by nun but at the operational level and within the science community honesty and objectivity are job requirements.

I always thought that too, until my late sister told me a few stories about other scientist type folks who kept trying to discredit her work because it didn't fit their corporate political agenda.......

[ERD50]

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Originally Posted by FinanceDude I always thought that too, until my late sister told me a few stories about other scientist type folks who kept trying to discredit her work because it didn't fit their corporate political agenda.......

I think it would be naive to believe that any one group was somehow immune from gaming the system for their own benefit. Some are probably more subtle than others.

-ERD50

[Midpack]

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Originally Posted by ERD50 Quote: Originally Posted by Midpack Lying, cheating & stealing are far more common now than they were when most of us were kids, no comparison... I don't know if you are right or wrong, but what do you base that on? Personally, I kinda doubt that thousands of years of human nature has changed much in just 50 years, and in many ways, there are more controls and transparency in place today. I think lying and cheating may be harder to get away with in many cases today.

It's been pretty obvious to me over the last 50 years that it's become more common, examples all the time from first hand experiences and in our culture - TV & other media. The woman who won a $1MM lottery, kept taking food stamps and didn't see anything wrong with it - really? How common stealing mp3's online or copying CD's and DVD movies became about 10 years ago, millions of people didn't see anything wrong with it. Two of hundreds of examples, but I suspect we'll disagree anyway.

If you want "data" read the chapter on "Honesty" in Coming Apart. Fortunately it's still a minority, just much larger than generations ago.

[clifp]

Empathy, and being nice are all wonderful qualities in person. They are also valuable traits in many businesses like health care, aid work, and most services industries. Candor is valuable in engineering and scientific pursuits. I think they are pretty useless in a business like investment banking. More importantly, I can't imagine that anyone with any familiarity with Goldman Sach for the last 30 year would describe the typical GS employee as a sweet, caring people-person, who is scrupulously honest.

So it isn't exactly news when a low-level ex-employee tells us what has been previously reported many times. And as far as being honest himself, Mr Smith implies he is high ranking employee. In fact he gave himself a promotion when he is in reality one of 12,000 VPs out 30,000 employees and he hasn't gotten a promotion in 6 years.

Goldman has PR problem of that there is no doubt. My perception is much of it is well deserved and ultimately their corporate arrogance very well may hurt them. On the other hand GS tendency to place profits above all else seems have been a winning strategy compared to Lehman Brothers, Bear Stearns, and Merrill Lynch.

[nun]

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Originally Posted by FinanceDude I always thought that too, until my late sister told me a few stories about other scientist type folks who kept trying to discredit her work because it didn't fit their corporate political agenda.......

Was this in the biological sciences? I now work at a medical school and I find that medical and biological scientists are a lot more cut throat than physical scientists and engineers. The computer scientists are weird everywhere.

[FIRE'd@51]

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Originally Posted by Gone4Good 1) Goldman's clients are all sophisticated investors. They're playing in the Major Leagues and they know it. The folks facing Goldman on each trade are people like Bill Gross and Steve Cohen and Warren Buffett.

Actually this isn't true. While It's unlikely that Goldman will get the better of Bill Gross and his like, Goldman's client base includes plenty of less sophisticated portfolio managers who manage large amounts of money in-house at state and local pension funds.

[Gone4Good]

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Originally Posted by FIRE'd@51 Actually this isn't true. While It's unlikely that Goldman will get the better of Bill Gross and his like, Goldman's client base includes plenty of less sophisticated portfolio managers who manage large amounts of money in-house at state and local pension funds.

What is true is that the people you describe are all professional investors. They get paid to understand financial markets. The question is, are they given all the resources they need to compete? If not, whose fault is that?

Their employer has a couple of choices. They can pay Wellington, or Franklin, or some other big shop to manage their money. They can invest to build a quality in-house shop. Or they can save a few bucks by letting a couple of guys with a Bloomberg terminal manage the money.

If they choose to go the latter route, they're making a deliberate calculation that the money they save on asset management overhead will more than compensate for inferior asset management capabilities. If that turns out not to be true, they've got nobody to blame but themselves.

These guys are all pros. It's time to put the Big Boy pants on.

[FUEGO]

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Originally Posted by Gone4Good What is true is that the people you describe are all professional investors. They get paid to understand financial markets. The question is, are they given all the resources they need to compete? If not, whose fault is that?

The government entity I work for consumes a fair amount of i-bank services and professional investors wouldn't accurately describe any of my gooberhead coworkers. There is theoretically an oversight entity that makes sure we don't get "goldman sached" too much, but I imagine this oversight entity only serves to make sure they get the kickbacks from the i-bank relationship instead of my gooberhead coworkers.

[marko]

I interviewed a guy for a job we were offering. He said: "...well, I think that what's good for the customer is bad for the company and vise/versa...".

I got up and thanked him for his time. He didn't get the job.

[clifp]

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Originally Posted by FUEGO There is theoretically an oversight entity that makes sure we don't get "goldman sached" too much, but I imagine this oversight entity only serves to make sure they get the kickbacks from the i-bank relationship instead of my gooberhead coworkers.

We also staff the top jobs at the Fed and Treasury with former GS executives, which helps insure that Uncle Sam doesn't get Goldman Sacked too badly and reserves the worst shafting for little towns in Scandinavia, the Chinese, the Saudi's and other oil rich countries.

As a country, we should be grateful that GS did such a fine job in dumping our toxic financial assets outside of the country. Just like the US exists as place for the Chinese to dump their toxic toothpaste, pet food, and dry wall least it affect the domestic market. The rest of the world is a a terrific market for America's "best" financially engineered products. What Mr Smith didn't seem to get is that he worked for GS's foreign operations, aka the landfill.

[ERD50]

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Originally Posted by Midpack It's been pretty obvious to me over the last 50 years that it's become more common, examples all the time from first hand experiences and in our culture - TV & other media. The woman who won a $1MM lottery, kept taking food stamps and didn't see anything wrong with it - really? How common stealing mp3's online or copying CD's and DVD movies became about 10 years ago, millions of people didn't see anything wrong with it. Two of hundreds of examples, but I suspect we'll disagree anyway. If you want "data" read the chapter on "Honesty" in Coming Apart. Fortunately it's still a minority, just much larger than generations ago.

I don't see where 'agreeing' or 'disagreeing' has a place in this. Would we 'disagree' on the recorded high temperature at ORD on a certain date? It either is X or it isn't. 'Lying, cheating & stealing are far more common now than they were when most of us were kids, no comparison...', or they weren't. Our perceptions might be different, but the facts can't be.

It's obviously not as easy to measure as temperature, but when you say there is 'no comparison' that seems to say it ought to be obvious to anyone. I'm not so sure it is.

We could trade anecdotes till the cows come home, but there is no value in that.

But taking your one example, stealing mp3s - well, I recall plenty of people copying/swapping purchased LPs to Cassette tape. And that took physical access to the LP, a connection with a person willing to allow it to be copied (I sure wouldn't loan my precious LPs to someone with a crappy, dirty, worn needle that tracked at 10 grams!), a cassette recorder and phono with the proper line in/out connections, and it took time.... slower than real time, with the pauses, miscues, plus trying to figure out if you can fit that next song on that side of the tape (base 60 math anyone?), and oh wait - it clipped, go back and re-record at a lower level, ooops, it skipped, try that track again. And then, (oh horrors) you have to manually write the titles of the tracks on that little cover sheet in the case.

Now, compare that with stealing an mp3. Many households already have everything they need. Click, and a minute later you've got it, complete with all the song info. And you can play it on something that fits in your pocket. No physical access, no one-on-one contact, one person makes it available to millions. EZ. Quick. No social skills required. No getting your hands dirty. Start it and go off and have a cola. EZ.

So was it wrong for the teens in the 60's and 70's to tape and then share LPs? Yes. Was it as easy as today? No. Would the teens in the 60's and 70's steal more music if it was easier? It seems obvious to me that they would. More than today's teens? Who knows? But I don't think it is obvious that they'd act differently, and I see no reason to think they would.

Now, I don't steal something just because there is an easy opportunity. But if we look at a big group, some will be on the edge, and easy will pull them over the edge.

Does the Coming Apart book have real data? If so, I may take a look. But there are so many books/articles written to tell some group of people what they want to hear, I'm always a bit skeptical.

-ERD50

[Gone4Good]

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Originally Posted by FUEGO The government entity I work for consumes a fair amount of i-bank services and professional investors wouldn't accurately describe any of my gooberhead coworkers.

I'm intriqued. What products and services does this government entity feel are so important to have but not important enough to hire people who can understand them?

Maybe it's important to note that in most transactions, an Investment Bank is not a financial advisor. It is normally just acting as a middle-man bringing a buyer and a seller together. If we want the I-Bank to have a fiduciary responsibility to it's clients, to which client does that responsibility point: the buyer or the seller? It can't be both because buyers and sellers interests are in direct conflict. And yet they're both clients at exactly the same moment in time.

[MichaelB]

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Originally Posted by Gone4Good Maybe it's important to note that in most transactions, an Investment Bank is not a financial advisor. It is normally just acting as a middle-man bringing a buyer and a seller together. If we want the I-Bank to have a fiduciary responsibility to it's clients, to which client does that responsibility point: the buyer or the seller? It can't be both.

An investment bank works for the company that wants to raise capital by providing advice and strategy. When it engages in other businesses, such as trading for its own account or providing investment advise to others, it risks conflict of interest.

[Gone4Good]

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Originally Posted by MichaelB An investment bank works for the company that wants to raise capital by providing advice and strategy. When it engages in other businesses, such as trading for its own account or providing investment advise to others, it risks conflict of interest.

The industry is indeed rife with conflicts. But underwriting securities for firms (which I guess Mr. Smith would be surprised to learn is a relationship business) requires a sales force to sell those securities and a trading desk to support and provide liquidity for it.

The underwriter has an obligation to perform due dilligence and provide adequate disclosure. It dosen't have an obligation to believe the security is a good investment and it doesn't have an obligation to do the buyer's homework for him. Again, the I-Bank is just a middle man bringing a buyer and seller with conflicting interests together.