Goldman Director resigns and lets it all hang out

[eridanus]

If customers thought they were being misled or missold products, they would either sue or complain to the SEC - something which unhappy customers routinely show a willingness to do.

Been there, done that, got the t-shirt.

Banks Bundled Bad Debt, Bet Against It and Won - NYTimes.com

He mentioned Abacus in the letter. Maybe you missed that sentence?

SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages; 2010-59; April 16, 2010

[FONT=Verdana,Arial,Helvetica]According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1[/FONT]

 

[Dejavu tired]

You must have read a different letter than the one I did. He clearly stated that he did not have an issue with them trying to make money. His issue was that they were trying to make money at the expense of the very customers they were supposed to be serving.

Well, I sort of disagree with this, but maybe you consider this part of reputation...I think ethics should be a fourth. If you consider ethics part of reputation, then fine...we agree. IMO the ethics were violated, if you believe what he said was true.

If it goes without saying, you would not have said it...but I'm glad you did. Customers may not always know that they were getting the wrong end of the deal. Let's say I had a coin that I had no idea of the value. You, an expert came in and told me it was worth $50 even though you knew it was worth $100. I had expected that it was only worth $20...so I gladly took $50 from you. Then, you went out and sold it for $100. Seem ethical to you? You could argue that the seller should do their own research and beware of the buyer...I'll accept that. But it does not forgive the deceitful buyer for misleading the seller.

You're entitled to your opinion...but I disagree...we'll find out over time what the customers of Goldman think. It's obvious you, as a customer, are not going anywhere.

I'll weigh in here only this once, since this seems to be a USA rules issue. However, the scenario described, if the assayed value is "really" $100, one needs to ask, "in which market?". If wholesale, then he ethically might expect $100 - however if wholesale is $50, and retail is $100, the ethical thing to say/do is to clarify the distinction, and if the buyer is a wholesale buyer, openly liking to make an honest profit on the coin, he is doing what many, good people do, which is declaring in which market they buy, and in which one they sell. Clarity, it seems, is the rare ethical commodity in many financial dealings, all over the world. I stand among those who would love to be able to take a buyer/seller at their word. That's the "market" desire to have things be stable, predictable, contractual, rather than speculative unpredictable secretive junk.

 

[GusLevy]

And in similar news out of NYC, All-Star outfielder Andruw Jones has decided to immediately retire his position and baseball career with the New York Yankees Baseball organization as he states "somewhere in the past, umm, couple years or somewhere around there the team management and other players changed from caring about the fans to not really caring that much about them. The management and other players always try to tell the fans that they care about them but I can tell you from the inside that most of those guys don't really care that much about the fans as individuals." Jones states further, "I always played this game for the fans and not for the money so to see the Yankees organization lie like that really hurts, man."

Jones said his current plans are to focus his energies on his growing auto dealership in Atlanta whose popular motto - "I will always go to bat for you, the customer!" - has made it the fastest growing business in the state of Georgia.

 

[Texas Proud]

I was surprised that this letter was the first new item on the national news...

Not sure of his name, but think it is David Faber.... he said he had talked to people and that the guy is not that far off...

 

[Independent]

This is Goldman's public response

"We disagree with the views expressed, which we don't think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."

Does anybody here believe that is true?

 

[Midpack]

"We disagree with the views expressed, which we don't think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."

This is Goldman's public response

Does anybody here believe that is true?

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.

Again, some are certainly better than others but I don't think anything about this story is unique to financial services or any other industry. Most employees at all levels treat customers well, but some employees treat customers badly every day. And every company has good employees who leave and criticize their employer, you hear those stories here.

Much ado about little, this BIG story will fade into the ether like most...

 

[Buckeye]

I don't think enlightened is the word I'd use...but I think it's refreshing that someone is willing to say what actually goes on rather than being paid "hush money" to go away and be quiet.

I do wonder, however, just how hard he tried to change things while there. That, IMO, is the true test of courage...to stand up for what you think is right in the face of doubters and opposition.

+1 on the first paragraph.

I resigned from a company I felt was "ethically challenged." I didn't have any delusions of grandeur I could change anything by staying. The bad people were very powerful and they would have crushed me like a bug. I had previously learned my lesson that speaking truth to power is pretty much a waste of time.

In a previous job at a start-up, I went to Board members and told them straight out the CEO was using company personnel, time and money to run his other company and was otherwise mis-using company funds and not providing adequate leadership.

They didn't listen and I was laid off within 90-days. The investors (a group of small-time millionaires) ended up losing a total of $25 million. Would things have turned out differently if they had quickly acted on the information I gave them? Who's to say, but I knew the company was doomed if the CEO stayed in charge and the Board kept listening to his lies and BS.

The three other VP's were willing to look the other way and continue drinking the kool-aid hoping for the big payoff. My integrity was not for sale.

 

[Gone4Good]

See below. Disgruntled and naive.

If by "name" you mean slur, I object:

"Naively written" is certainly not a slur, it's an assessment of the letter - and an accurate one.

Disgruntled means angry or dissatisfied. Angry may be debatable, but dissatisfied is spot on and also not a slur.

 

[nun]

Mr Smith sounds like a disgruntled loser. The bottom line is that banks (like all other businesses) exist to make money for their shareholders and it is disengenuous (to say the least) to claim that there is a problem with that. Quite frankly, I would be very worried if banks were not seeking to make a profit out of their dealings with their customers and counterparties - the negative implications for the stability of the financial system and our own savings and investments would be significant.

Goldman Sachs needs to make money, but they should do this in a manner that does not exploit the client. 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.

 

[nun]

In a previous job at a start-up, I went to Board members and told them straight out the CEO was using company personnel, time and money to run his other company and was otherwise mis-using company funds and not providing adequate leadership.

They didn't listen and I was laid off within 90-days. The investors (a group of small-time millionaires) ended up losing a total of $25 million. Would things have turned out differently if they had quickly acted on the information I gave them? Who's to say, but I knew the company was doomed if the CEO stayed in charge and the Board kept listening to his lies and BS.

The three other VP's were willing to look the other way and continue drinking the kool-aid hoping for the big payoff. My integrity was not for sale.

I worked in a small startup once and was worried at the stretching of technical specs by the CEO to make sales. The he'd look to me to back him up in meetings. I wouldn't do this. I now understand he had numbers to meet and actually have some sympathy for his position having 20 more years of experience, but I still wouldn't lie to a customer just to get a sale like he did.

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.

 

[FinanceDude]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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.