Goldman Sachs and Wall Street Bonuses in General

[Ninjahedge]

The new royalty.

It is not what you know, but who you know.

It has been that way in a lot of areas, but moreso in the ones that are harder to absolutely prove or disprove competancy.

A brilliant scientist stands out from a dullard, but not so much a brilliant financial planner from one who may have just been lucky.

If the briliant man is not given a chance to make money, there is no proof of his prowess, while Mr. Silver Spoon can come in riding on daddy's coat-tails and organize a standard trade/deal that makes millions that almost anyone could have done.

Net effect? Daddy's kid earned XXX YYY million $$s, Brilliant Man only earned :P at Podunk Investments Inc. Therefore Daddy's kid is, on paper, worth more.....



On a side note, there is SOME truth to "who you know". Contracts and deals DO stay within families and who people are familiar with. They always have been. So someone with connections is, in quite a few cases, more valuable than someone who can make connections.

[pianoman11686]

December 2, 2007

Everybody’s Business

The Long and Short of It at Goldman Sachs

By BEN STEIN

FOR decades now, as a writer, economist and scold, I have been receiving letters from thoughtful readers. Many of them have warned me about the dangers of a secret government running the world, organized by the Trilateral Commission, or the Ford Foundation, or the Big Oil companies or, of course, world Jewry.

I always scoff at these letters. The world is far too complex a place to be run by any one group. But the closest I have recently seen to such a world-running body would have to be a certain large investment bank, whose alums are routinely Treasury secretaries, high advisers to presidents, and occasionally a governor or United States senator.

This all started percolating in my fevered brain last week when a frequent correspondent, a gent in Florida who is sure economic disaster lies ahead (and he may be right, but he’s not), forwarded a newsletter from a highly placed economist at Goldman Sachs named Jan Hatzius.

That worthy scholar recently wrote a detailed paper about how he thought the subprime mess would get worse and worse. It would get so bad, he hypothesized, that it would affect aggregate lending extremely adversely and slow down growth.

Dr. Hatzius, who has a Ph.D. in economics from “Oggsford,” as they put it in “The Great Gatsby,” used a combination of theory, data, guesswork, extrapolation and what he recalls as history to reach the point that when highly leveraged institutions like banks lost money on subprime, they would cut back on lending to keep their capital ratios sound — and this would slow the economy.

This would occur, he said, if the value of the assets that banks hold plunges so steeply that they have to consume their own capital to patch up losses. With those funds used to plug holes, banks’ reserves drop further. To keep reserves in accordance with regulatory requirements, banks then have to rein in lending. What all of this means — or so the argument goes — is that losses in subprime and elsewhere that are taken at banks ultimately boomerang back, in a highly multiplied and negative way, onto our economy.

As the narrator in the rock legend “Spill the Wine” says, “This really blew my mind.”

So I started an e-mail correspondence with Dr. Hatzius, pointing out what I believed were a few flaws in his paper. Among them were his hypothesis that home prices would fall an average of 15 percent nationwide (an event that has never happened since the Depression, although we surely could be headed in that direction), and that this would lead to a drastic increase in defaults and losses by lenders.

This, as I see it, is a conclusion that is an estimation based upon a guess. I found especially puzzling the omission of the highly likely truth that the Fed would step in to replenish financial institutions’ liquidity if necessary. In a crisis like that outlined by the good Dr. Hatzius, the Fed — any postwar Fed except perhaps that of a fool — would pump cash into the system to keep lending on track.

I mentioned this via e-mail to Dr. Hatzius. He generously agreed that there was some slight merit to my arguments and that he was merely pointing out tendencies and possibilities (if I understand him correctly).

BUT forecasting is tricky, and I have a hard time believing that financial events to come will be qualitatively different from those that have already happened.

I do want to emphasize Dr. Hatzius’s gentlemanliness and intelligence. But I also want to emphasize that, as I see it, his document was mostly about selling fear. A spokesman for Goldman Sachs categorically denies this point and says that the firm’s economic research is held to the highest levels of objectivity and that its economists’ views are completely independent.

As I interpret it, Dr. Hatzius was saying that the financial system would possibly not be able to adjust to a level of financial losses that are large on an absolute scale but small compared with aggregate credit or the gross domestic product. He is also postulating that lenders would have to retrench so deeply that lending would stall and growth would falter — an event that, again, has not happened on any scale in the postwar world, except when planned by the central bank.

In other words, with the greatest possible respect to Dr. Hatzius, his paper is not really what I would call a serious overview of the situation. It is more a call to be afraid and cautious based on general principles that he embraces and not on the lessons of history. (In this respect, he is much like many economic journalists and commentators who sell newsprint by selling fear. The common cause of journalists and Wall Streeters in this regard is a subject I will address in the future.)

Now, let me make a few small points here and then get to my own big point.

Goldman Sachs is a huge name in terms of moneymaking and prestige. I totally understand the respect it receives for its financial dexterity. The firm is a superstar in that regard, and I, a small stockholder, am grateful. But it has never been clear to me exactly why its people are considered rocket scientists in any other area than making money.

Dr. Hatzius’s paper is a prime example of my puzzlement. It shows extreme intelligence but basically misses the point: yes, there are possible macro dangers, but you have to go all the way around Robin Hood’s barn to get to them, and you have to use what I think are extremely far-fetched hypotheticals to get to a scary situation. (This is not to diminish the real risks in today’s economy, I’m just not as gloomy about them as Dr. Hatzius.)

Why, then, is his document circulating? Perhaps as a token of Dr. Hatzius’s genuine intelligence, which is fine. But to me, his paper seemed like a selling document in the real Wall Street sense of selling — namely, selling short. (Dr. Hatzius notes that he has long been bearish on housing, since faraway 2006, but I respectfully note that that is a lot different from predicting a credit catastrophe. The spokesman for Goldman also noted the company’s bearishness on housing since 2006. He also noted that in the recent past, Goldman Sachs has moved to a considerably larger short posture and that the firm is net short.)

More thoughts came to me as I read a recent piece in Fortune by my colleague Allan Sloan, a veteran financial writer. Mr. Sloan traces the life and death throes of a Goldman Sachs-arranged collateralized mortgage obligation. He shows how truly toxic waste was sold to overly eager investors who now have major charge-offs, and he also points out that some parts of the C.M.O. were indeed safe and were either current or had been paid off.

But what leaps out at me from this story is that Goldman Sachs was injecting dangerous financial products into the world’s commercial bloodstream for years.

My pal, colleague and alter ego, the financial manager Phil DeMuth, culled data from a financial Web site, ABAlert.com (for “asset-backed alert”), that Goldman Sachs was one of the top 10 sellers of C.M.O.’s for the last two and a half years. From the evidence I see, Goldman was doing this for years. It might have sold very roughly $100 billion of the stuff in that period, according to ABAlert. Goldman was doing it on a scale of billions even when Henry M. Paulson Jr., the current Treasury secretary, led the firm.

The Goldman spokesman would not comment on this except to note that other firms sold C.M.O.’s too.

The point to bear in mind, as Mr. Sloan brilliantly makes clear, is that as Goldman was peddling C.M.O.’s, it was also shorting the junk on a titanic scale through index sales — showing, at least to me, how horrible a product it believed it was selling.

The Goldman Sachs spokesman said that the company routinely shorts the securities it underwrites and said that this is disclosed. He noted candidly that Goldman is much more short in this sector than usual.

Here is my humble hypothesis, even after talking to Goldman: Is it possible that Dr. Hatzius’s paper was a device to help along the goal of success at bearish trades in this sector and in the market generally? His firm says his paper, like all of its economists’ work, was not written to support any larger short-trading strategy. But economists, like accountants, are artists. They have a tendency to paint what their patrons, who pay them, want to see.

From what I have observed over the years, Goldman has a fascinating culture. It is sort of like what I imagine the culture of the K.G.B. to be. You always put the firm first. The long-ago scandal of the Goldman Sachs Trading Corporation, which raised hundreds of millions just before the crash of 1929 to create a mutual fund, then used the fund’s money to prop up stocks it owned and underwrote, was a particularly sad example. The fund, of course, went bust.

Now, obviously, Goldman Sachs does many fine deals and has many smart, capable people working for it. But it’s not the Vatican. It exists to make money for the partners and (much farther down the line) the stockholders. The people there are not statesmen. They are salesmen.

To my old eyes, the recent unhappiness about mortgages and Goldman’s connection with them are not examples of sterling conduct. It is bad enough to have been selling this stuff. It is far worse when the sellers were, in effect, simultaneously shorting the stuff they were selling, or making similar bets.

Doesn’t this bear some slight resemblance to Merrill selling tech stocks during the bubble while its analyst Henry Blodget was reportedly telling his friends what garbage they were? How different would it be from selling short the junky stock that your firm is underwriting? And if a top economist at Goldman Sachs was saying housing was in trouble, why did Goldman continue to underwrite junk mortgage issues into the market?

HERE is a query, as we used to say in law school: Should Henry M. Paulson Jr., who formerly ran a firm that engaged in this kind of conduct, be serving as Treasury secretary? Should there not be some inquiry into what the invisible government of Goldman (and the rest of Wall Street) did to create this disaster, which has caught up with some Wall Street firms but not the nimble Goldman?

When the Depression got under way, the government created the Temporary National Economic Committee to study just what had happened on the Street to get the tragedy going. Maybe it’s time for an investigation of just what Wall Street and Goldman did to make money as they pumped this mortgage mess into the economic system, and sometimes were seemingly on both sides of the deal.

Or is Goldman Sachs like “Love Story”? Does working there mean never having to say you’re sorry?

Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.

Copyright 2007 The New York Times Company

[lofter1]

It's a bitch being rich ...

A Lurid Aftermath to a Hedge Fund Manager’s Life

CNBC
Seth Tobias, a regular guest on “Kudlow & Company” on CNBC, was found
dead in the pool of his home in Florida. His brothers say his wife killed him.

NY TIMES
By ANDREW ROSS SORKIN
December 4, 2007

JUPITER, Fla. — A life of private jets and black-tie balls ended with Seth Tobias, a wealthy investment manager and a familiar presence on CNBC, floating face down in the swimming pool of his mansion here.

It was just after midnight on Sept. 4 when Mr. Tobias’s wife, Filomena, frantically called 911. “Please send somebody, please!” Mrs. Tobias screamed. “He’s not breathing!” By the time the police arrived, she had pulled her husband’s body to the edge of the pool, where she cradled his head in her arms, sobbing.

Mr. Tobias, who was 44 years old, had apparently suffered a heart attack, his brother Spence said at the time. The police did not consider his death suspicious.

But now an unfolding drama over Mr. Tobias’s estate is providing a lurid account of fast money and faster living in the volatile world of hedge funds. Mr. Tobias’s four brothers and Mrs. Tobias are locked in a legal battle over the estate, which is worth at least $25 million. And, in a civil complaint, they have gone so far as to accuse her of murder.

The brothers, Samuel, Spence, Scott and Joshua, claim Mrs. Tobias drugged her husband and lured him into the pool. Bill Ash, a former assistant to Mr. Tobias, said he had told the police that Mrs. Tobias confessed to him that she had cajoled her husband into the water while he was on a cocaine binge with a promise of sex with a male go-go dancer known as Tiger.

Mrs. Tobias’s lawyers call the claims outrageous. She has not been accused of any crime.

The mystery deepened when it emerged that Mrs. Tobias spent $9,628 to have the pool drained and resurfaced days after her husband died, according to documents filed in an unrelated case.

The salacious accusations have captivated this wealthy enclave north of West Palm Beach and transfixed the investment world in New York, where Mr. Tobias ran a $300 million hedge fund from an office on Park Avenue. From the Breakers hotel in Palm Beach, a stately symbol of old money, to trading floors on Wall Street, the epicenter of the explosive wealth now reshaping American society, the case is seen as a parable of the modern gilded age.

“I don’t understand why this hasn’t ended up on ‘CSI: Miami’ yet,” said Jim Cramer, the host of CNBC’s stock-picking show “Mad Money” and Mr. Tobias’s former boss on Wall Street.

The questions keep piling up, starting with the big one: How did Mr. Tobias die? The police in Jupiter have not opened a homicide investigation but are awaiting the results of toxicology tests before making a final determination, said Sgt. Scott Pascarella.

At the center of the dispute is Mr. Tobias’s will, which designates his brothers as beneficiaries but does not name Mrs. Tobias. She contends that she is entitled to the estate because the will was signed before the couple married. In court filings, the Tobias brothers invoke Florida’s “slayer statute,” which prohibits inheritance by a person who murders someone from whom they stand to inherit. They claim she “intentionally killed” her husband “by asphyxiation and drowning.”

One lawyer representing Mrs. Tobias, Gary Dunkin, said he was shocked by the accusation. “In my 25 years practicing law, this is the most reckless allegation I have ever seen,” he said in court. Her lawyers, which include her prior husband, Jay J. Jacknin, have asked the court to put off her depositions, citing her “psychiatric condition.” They said she hired contractors to empty the pool because she was distraught over her husband’s death.

However this mystery plays out, it is providing a treasure of details about the lavish lifestyles that hedge funds can afford their founders, and perhaps sheds light on how all that money ultimately influences personal lives.

Mr. Tobias, a native of Philadelphia, entered this secretive, often volatile corner of the financial world after spending less than a decade on Wall Street, including a stint with Mr. Cramer’s former money-management firm. He formed Circle T in 1996, with $4 million, and parlayed that into a $300 million hedge fund and brokerage firm. Circle T is in the process of returning investors’ funds; clients have not lost money.

He counted among his investors Samuel Zell, the billionaire who recently agreed to buy the Tribune Company. Mr. Zell, in an interview, said he rarely interacted with Mr. Tobias. “I knew Seth for 10 or 15 years on a very unconnected basis,” he said. “He was a good, smart guy.”

Along the way, Mr. Tobias collected the trappings of success. He spent days at the Kentucky Derby and nights at Donald Trump’s Mar-a-Lago Club. He frequently shuttled by private jet between New York, where he worked in the Seagram Building in Manhattan, and Florida, where he owned two homes.

Mr. Tobias made — and apparently spent — millions of dollars a year, court documents suggest. Outstanding expenses at the time of his death included $52,532 on his American Express Centurion Black Card and $7,960 on his Bank of America credit card. His mortgage payment for one of his homes was $35,000 a month. He paid $1,367 a month to lease a Land Rover. His monthly cable bill from Comcast was $535.19.

But the boyish Mr. Tobias never ran with the titans of Wall Street. He was a small player in an industry where successful managers command billions or even tens of billions of dollars. Nonetheless, Mr. Tobias managed to make a name for himself on financial-news television, appearing on “Squawk Box” and “Kudlow & Company” on CNBC.

Now, the hints emerging about his private life have captivated Wall Street. Mrs. Tobias told the police that her husband may have been using cocaine on the night he died, according to police reports. Some of Mr. Tobias’s former associates say he used drugs regularly and often disappeared from his office for days or weeks at a time.

Mr. Tobias’s life was apparently as volatile as his investment returns. After Circle T lost 5.3 percent in 2005, his marriage began to fray. In March 2006, the police were called to the Tobiases’ home because of a domestic disturbance. A few days later. Mr. Tobias filed for divorce. It was one week before the couple’s first anniversary.

The Tobiases later reconciled. But the divorce filings included a laundry list of accusations. Mrs. Tobias stated that she caught him having an “adulterous affair” and that he “gambled away tens of thousands of dollars and used other funds on illicit habits.” She asked the court to award her $46,000 a month for living expenses. He argued that she was constantly spending too much money.

Even after the couple reconciled, they fought constantly, mostly over money, according to several friends, who asked not to be identified for fear of being subpoenaed in connection with the case or because they were worried that their professional reputations would be harmed by being associated with the case. At one point, Mrs. Tobias bought a Porsche on her credit card and then cried when Mr. Tobias told her to return it, one friend recounted.

They also secretly frequented a gay bar called Cupids in West Palm Beach, in a strip mall along a main thoroughfare. It was there, according to Mr. Ash, that Mr. Tobias first met Tiger.

“Seth used to come in here back when it was crazy,” said Adiel Hemingway, the longtime manager of Cupids. As a flat-screen television blared hard-core gay pornography, he said that Mr. Tobias often came to the club with his wife. Mr. Hemingway took out a picture of Tiger in his office. Tiger is blond and covered with tattoos that look like stripes.

“I know exactly who he is, but I’m not telling you,” Mr. Hemingway said. The Tobias brothers have subpoenaed Tiger, using the address of Cupids, but have been unable to learn his true name.

***

Filomena Tobias:

The day Mr. Tobias died, he spent the afternoon at the Breakers with his wife and several friends, drinking and possibly using cocaine, according to Mrs. Tobias’s statement to the police. From there, Mr. Tobias went with one of the friends to E. R. Bradley’s Saloon, a boisterous open-air bar in Palm Beach that looks over the Intracoastal Waterway.

What happened next is unclear, except that Mr. Tobias was dead in the pool, with abrasions on his nose, forehead and back. When the police arrived, Mrs. Tobias, on the advice of a friend who is a lawyer, refused to let them enter the house, which is perched on the edge of the sixth hole of a Jack Nicklaus-designed golf course in a gated community. After returning with a warrant, the police found a Ziploc bag with a white powdery substance and a small baggie and a straw, as well as two empty plastic prescription bottles. Mr. Tobias’s eyeglasses and a drinking glass were discovered on the bottom of the pool.

According to the brothers’ lawsuit, Mrs. Tobias caused her husband “to ingest one or more controlled substances that induced loss of consciousness and capacity to breathe.” They further claimed that she caused him “to enter the swimming pool at their residence after his ingestion of controlled substances and in his stuporous and helpless condition he was asphyxiated and died.” Mr. Tobias’s best friend, Patrick Bransome, said in a statement to police that he had not seen him go in a pool or swim in years. Mr. Bransome declined to comment.

A few weeks later, Mr. Ash called the police and told them that Mrs. Tobias had confessed to him and that he had a tape recording to prove it. Mr. Ash has a past: he has been arrested at least 11 times on charges ranging from larceny to prostitution; He has been called Mr. Madam because of a past connection he says he had to Heidi Fleiss, the Hollywood Madam. Investigators flew to Mr. Ash’s home in San Diego and spent a day interviewing him.

“She confessed to me on tape,” Mr. Ash, said in an interview. “I believe she absolutely did it.” He would not provide the tape, but expressed outrage that the case was not moving more quickly. “I’m the only one standing up for him. Who else in this whole crazy thing is looking out for him?”

The police in Jupiter appeared unimpressed with Mr. Ash’s allegations. “You can take it for what it is worth,” Sergeant Pascarella said.

Through her lawyers, Mrs. Tobias refused to comment for this article. In a recent interview with The Palm Beach Post, she said, “I’m broken. I haven’t gone out in six weeks. I’ve been in and out of the hospital. I just pray all day and wonder why people could be so evil.”

She said of Mr. Ash: “All those rumors are disgusting. He’s a very sick man who should be institutionalized.”

Jessica Seubert and Jenny Anderson contributed reporting.

Copyright 2007 The New York Times Company

***

Cupids / West Palm Beach

[Front_Porch]

um, how do you "secretly frequent" a gay bar with your wife?

[mariab]

Nuns outraged by Goldman Sachs


Four orders of nuns have submitted a challenge over the way the bank pays its executives. With video updates.


By Kim Peterson on Mon, Apr 4, 2011 3:16 PM


You've really hit a low point when you get called out by nuns. That's what's happening to Goldman Sachs (GS), a firm which, coincidentally, describes itself as doing "God's work."

Four orders of nuns are all investors in Goldman Sachs, and have sent the bank a formal challenge over the excessive ways the bank compensates employees, The Guardian reports. Goldman's top five employees received $69.5 million last year.

The nuns -- Sisters of Saint Joseph of Boston, Sisters of Notre Dame de Namur, Sisters of St. Francis of Philadelphia and the Benedictine Sisters of Mt. Angel -- have asked that shareholders demand the board review the company's executive compensation policies. They also want a report of that review by October.

The nuns want to know the following:

• Whether executive compensation is "excessive" and should be changed.

• Whether executive pay is affected by major layoffs and the salary of the lowest-paid workers.

• How executive pay and and company shareholders are affected by revenue fluctuations.

Goldman wants nothing to do with this request, the Guardian reports. It says shareholders already can get the information they need about compensation policies. "Our board believes that the preparation of the requested report would be a distraction to our compensation committee and our board, would entail an unjustified cost to our firm and would not provide shareholders with any meaningful information," the company added.

I don't think you want to make nuns mad, Goldman Sachs, even if you are a giant vampire squid.

Video @
http://money.msn.com/top-stocks/post...91a7&GT1=33002

[Ninjahedge]

Unjustified cost?

It will cost you one intern about 1 week to do it.

Compared to the $65M in bonuses, it is a drop in an ocean.

[mariab]

Ex-Goldman board member indicted in insider case

By TOM HAYS - Associated Press | AP – 15 mins ago

• FILE - In this Jan. 3, 2009 file photo, Rajat Kumar Gupta, former Chairman of Global …

NEW YORK (AP) — A former board member of Goldman Sachs and Procter & Gamble surrendered Wednesday to face a six-count securities fraud indictment that makes him the latest defendant in the biggest insider trading case in history.
The charges against Rajat Gupta were unsealed in U.S. District Court in Manhattan, where the indictment accused him of cheating the markets with Raj Rajaratnam, the convicted hedge fund founder who was the probe's prime target.
Gupta, 62, of Westport, Conn., was awaiting an arraignment on one count of conspiracy to commit securities fraud and five counts of securities fraud.
The charges carry a potential penalty of 105 years in prison.

The Securities and Exchange Commissioner originally brought civil fraud charges against Gupta in March. The SEC alleged that, at the height of the financial crisis, he passed along privileged financial information that helped enrich Rajaratnam, a former billionaire hedge fund manager who was the prime target of the criminal probe.
Gupta's lawyer responded by accusing the SEC of launching a "flawed case premised in large part on unreliable evidence being used in an attempt to bring down a man of sterling reputation and remarkable achievements without the procedural safeguards historically accorded to all persons similarly charged."
In a release, U.S. Attorney Preet Bharara said Gupta broke the trust of some of the nation's top public companies and "became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam, who reaped enormous profits from Mr. Gupta's breach of duty."
Alluding to the wide scope of the prosecution, he added: "Today we allege that the corruption we have seen in the trading cubicles, investment firms, law firms, expert consulting firms, medical labs, and corporate suites also insinuated itself into the boardrooms of elite companies."

FBI Assistant Director-in-Charge Janice Fedarcyk said the arrest was the latest to occur in an initiative launched by the FBI in 2007 against hedge fund cheats.
"The conduct alleged is not an inadvertent slip of the tongue by Mr. Gupta," she said. "His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of 39 seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend."
The indictment said Gupta shared confidential information about both Goldman Sachs and Procter & Gamble from 2008 through January 2009, knowing that Rajaratnam would use the secrets to buy and sell stock ahead of public announcements.
The Securities and Exchange Commission also brought civil insider trading charges against Gupta Wednesday.
The SEC said Gupta, the former McKinsey & Co. global head, illegally tipped Rajaratnam, who has been sentenced to 11 years in prison after he was convicted at trial.

http://news.yahoo.com/ex-goldman-boa...150439701.html

[eddhead]

Wow, what a scathing indictment from a now (as of today) former employee of Goldman Sachs.

March 14, 2012

Why I Am Leaving Goldman Sachs

By GREG SMITH

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.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.
When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.

Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.

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.

It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.

When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.

My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.
I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
http://www.nytimes.com/2012/03/14/op...gewanted=print

[lofter1]

Unfortunately that seems to reflect the current state of the American financial & business world, well beyond Goldman Sachs.

Friends from Italy recently came to visit the US / NYC, their first time over here in five years. They saw a pronounced change at every turn, from car rental to restaurants, and they got the impression that the prime motive of the business interaction was to push upon them things they didn't need, with the goal to increase their expenditures. They expect this in Italy, where the game of business at every level is a constant negotiation. But they were amazed and saddened to see how that practice now seems to be at the core of American interactions, too.

[Ninjahedge]

What's sad is not that it is happening.

What's sad is that, in a limited scope, it works.


lather, rinse, repeat.

[mariab]

That's a hell of a damning exposé. I hope every one of their customers read that. No financial house will want him now. He should consider a career in journalism, NYT might be interested in him.

pianoman's post #107 is also incredible. Just before the sh** hit the fan.

[lofter1]

From that ^ post #107 ... So much for the wise Mr. Stein (maybe he should re-pursue his career in the movies) ...

December 2, 2007

Everybody’s Business

The Long and Short of It at Goldman Sachs

By BEN STEIN

... This all started percolating in my fevered brain last week when a frequent correspondent, a gent in Florida who is sure economic disaster lies ahead (and he may be right, but he’s not), forwarded a newsletter from a highly placed economist at Goldman Sachs named Jan Hatzius.

That worthy scholar recently wrote a detailed paper about how he thought the subprime mess would get worse and worse. It would get so bad, he hypothesized, that it would affect aggregate lending extremely adversely and slow down growth.

... a combination of theory, data, guesswork, extrapolation and what he recalls as history to reach the point that when highly leveraged institutions like banks lost money on subprime, they would cut back on lending to keep their capital ratios sound — and this would slow the economy.

... I believed were a few flaws in his paper. Among them were his hypothesis that home prices would fall an average of 15 percent nationwide (an event that has never happened since the Depression, although we surely could be headed in that direction), and that this would lead to a drastic increase in defaults and losses by lenders.

This, as I see it, is a conclusion that is an estimation based upon a guess ...

Perhaps it's all about how one defines "economic disaster"

[Ninjahedge]

The thing that gets me is that his statements are like the anti-prophesy.

Every thing he said that would not happen, DID happen, and for the very reasons he said they couldn't. (Example: Gross devaluation of housing stock by 15% or more. He said that was needed for this to come and that it would never happen... Well.....).

maybe he needs to make more Visine commercials and get off his egotistical "I know everything" bent.

[Ninjahedge]

Oh, on topic, I am starting to hear the story on Prime Time television now... Goldman is denying everything of course.....

[ZippyTheChimp]

This latest blowup about the culture at GS reminds me of a few posts made by someone (obviously a company employee) in the GS headquarters thread.

In responding to the negative comments about the building itself, and how little it offered the street, he posted about the artwork within the building. When asked how much of this artwork the public would experience, he disappeared.