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No more GS, please
If you're tired of reading about Goldman Sachs, well, I don't blame you. But I have to recommend one more article. So, here are some excerpts from "Will Everyone Please Shut Up About Goldman Sachs?"
It's by business writer Heidi Moore at Slate's Big Money Blog:
Enough already. After years of full-on Goldman Sachs conspiracy theories--implying that the firm runs the world--we all know that Goldman Sachs alums get pretty good jobs when they leave the firm. But the real question to ask is why they don't do better. If you believe that Goldman Sachs has designed the kind of devastating hive mind that can control any institution it touches, including the U.S. government, you also have to explain why Goldman Sachs alums have a history of not functioning terribly well outside of Goldman.
Why, for instance, did Henry Paulson, by all accounts a brilliant man, flounder about in the politics of the Treasury so desperately that he was forced at one point to plead with Nancy Pelosi on bended knee? Why did the first TARP overseer, Neel Kashkari, get yelled at by Congress while performing the thankless job of managing the $700 billion kitty of the government? Why did Edward Liddy, former Goldman board member who served as the new CEO of AIG, quit in a huff over bonuses?
Moore says when she was covering Wall Street, other bankers would tell her how disappointed they were when they hired former GS employees. "The allegation goes, their work was done when they dazzled a client with a Goldman Sachs business card." So, Moore talked to several current and former Goldman employees to better understand the bank's culture. Let's start with this finding:
The basic rule of Goldman culture is that the company manages its people exactly the opposite of how every other Wall Street firm does. It's not that Goldman doesn't have its egos--it surely does--but as a matter of management, the firm also has several safeguards in place to keep rampant egos from destroying decision-making. Another thing that makes Goldman different from other firms is not that all Goldman bankers agree but that they are free--and, in fact, encouraged--to disagree...
The difference is that Goldman Sachs bankers can disagree only before decisions are made; once all opinions are solicited, consensus is reached, and decisions are made, the decision is one made by the firm, on behalf of everyone, and it's final. Mostly, other Wall Street firms--from partnerships to giant investment banks--are hotbeds of infighting, and you need only talk to a few bankers before you find evidence that they undermine management decisions, subvert prominent colleagues, or openly ignore one another.
Moore says Goldmanites communicate well and pat each other on the back, rare in the world of Wall Street:
At Goldman, you have to feel sorry for anyone who tries to steal another person's credit. Too many people are watching. The firm has 360-degree reviews, which means that everyone is evaluated not only by their managers but also their underlings and peers.
In one sense, this contributes to the homogenization of Goldman culture: After a few reviews, a reasonably intelligent person will know what he needs to be doing to fall into line with Goldman's values and thus be promoted. But the 360-degree reviews also act as good checks for authoritarian tendencies often evinced on Wall Street, the guys who suck up to their bosses and abuse their underlings when no one's watching.
Uh, does anyone remember what happened at AIG?
And the reason Goldman rewards its people so well?
At many other Wall Street firms, bankers often perceive themselves to be at war with their firms; every bonus season brings negotiations about whether profitability comes from the banker's own work or "the platform," meaning the brand name of the bank. "Ripping someone's face off," or screwing them on a trade, is a common phenomenon on Wall Street. But Goldman, these people say, is refreshingly simple: "If you take care of us, we'll take care of you." And then they deliver. It may sound like the mafia, but you can see why many would rather buy into that idea than risk having their work taken advantage of. It's amazing, these Goldmanites say, what a little incentive can do.
So you can see why Goldman alums sometimes don't do very impressively once they leave Goldman. They find themselves in positions where no one questions their premises and it's hard to get good feedback and pushback. (This is why Paulson employed telephone banks of analysts to call Wall Street to solicit opinions.) Outside of the Goldman womb of debate and ideas, bankers and traders lack perspective. You might say that no Goldman is an island.
No doubt there's some Goldman spin in here, but Moore's explanations are reasonable and insightful in a sea of columns about vampire squids or Goldman gods.
I believe there's some truth to it, yes. When you read it closely, it's not exactly a flattering picture of GS. Yeah, they seem to have a closed culture that allows them to perform well against the less disciplined Wall Street firms. But it also makes GS employees seem clueless when they get outside their little bubble.
The truth is undoubtedly somewhere in between the vitriol about the company and the happy horse poo. I mean, do you really believe all the GS conspiracy theories?
I agree with the somewhere in between statement, but to lump all GS conspiracies together is just a way to say if one is untrue than they all must be untrue.
Kind of like saying that you actually believe that price fluctuations in commodities last year were based on fluctuations in supply and demand.
Tom
I would have to add that this is a result of a malfunctioning free market. They are making wise business decisions for themselves which every business, in a capatalistic structure, should strive to inact, but it is coming at a cost of taxpayers and others. When the market isn't truely free then people can take advantage of it. If Wal-mart started selling used items on ebay then the market would be destroyed, but as it is now, the prices set themselves on ebay. Sure, GS could have bought billions in oil, but if geo-political events, consumers, industry didn't buy it, then GS would have lost billions. Lucky, we have a spendy government that doesn't like to lose.
What? No giant squid? I know lots of Goldman folks, and I'd say Heidi's analysis of the culture at 55 Broad is pretty much dead on (if only our company was run so impartially). They're also very generous during happy hour at Ulysses, but as an incorruptible member of the fourth estate, Heidi wouldn't know anything about that, I'm sure.
Whether GS has superior management is otiose to current concerns. The issue is the relationship between economic power and political power. Too close a relationship and democracy withers, as it has in America since the mid 1970s...and the strength of a market economy is undermined when economic power is overly concentrated as it was at the end of the 19th century in America and the beginning of the 20th.
Milton Friedman and Hayek before him saw markets and economic power as a countervailing force to political power which they saw as posing the greater threat to freedom. But too much concentrated economic power poses the same threat as too much political power.
The eagerness of GS managers over time to serve in high level government positions may be nobless oblige but I suspect that's more self-deception of PR than anthing else.
What I am tired of reading with regard to GS and the other mega-financial institutions is journalism that does not inform. This makes it difficult to follow the money. But Bernanke and his Fed cronies claim that telling us where the money is going would undermine their vaunted independence. My guess is that it would reveal an embarrassing amount of regulatory capture.
--from WSJ 7/31/09
"Bank Bonus Tab: $33 Billion
BY SUSANNE CRAIG AND DEBORAH SOLOMON
Nine banks that received government aid money paid out bonuses of nearly $33 billion last year -- including more than $1 million apiece to nearly 5,000 employees -- despite huge losses that plunged the U.S. into economic turmoil.
The data, released Thursday by New York Attorney General Andrew Cuomo, provide a rare window into the pay culture of Wall Street, where top employees typically make 90% or more of their compensation in year-end bonuses.
The $32.6 billion in bonuses is one-third larger than California's budget deficit. Six of the nine banks paid out more in bonuses than they received in profit. One in every 270 employees at the banks received more than $1 million.
Overall compensation and benefits at the nine banks fell 11%, to $133.5 billion in 2008 from $149.3 billion in 2007, the Cuomo report said. But with net revenues falling, the percentage of the firms' revenues dedicated to compensation rose to 45% last year from 41% in 2007.
The report reignites long-simmering anger, on Capitol Hill and beyond, over big Wall Street payouts. The nine firms in the report had combined 2008 losses of nearly $100 billion. That helped push the financial system to the brink, leading the government to inject $175 billion into the firms through its Troubled Asset Relief Program.
The chairman of the U.S. House investigative panel, New York Democrat Edolphus Towns, called the pay figures "shocking and appalling" and announced a hearing into compensation practices at banks.
The White House was more muted. "The president continues to believe that the American people don't begrudge people making money for what they do as long as...we're not basically incentivizing wild risk-taking that somebody else picks up the tab for," said White House Spokesman Robert Gibbs."
You don't suppose Mr. Obama supports the financial oligarchs just because they financed his election?
