What should one think of a company or salesman that does the following. You go in and ask to buy a ferrari, porsche or other quality vehicle and are excited about the purchase. The car is delivered and you find some problems. The clutch doesn’t work, the tires are worn out, the steering wheel is missing, pain job is terrible, and the brakes don’t work, and you have an immediate accident. Then on top of all this bad news you find out that the salesman and his company took out insurance on the car getting into an accident. Wouldn’t you find this questionable behavior, bordering on criminal activity? I would. Then why is it ok for Goldman Sachs to do exactly the same with financial products, and saying that ” we are a market maker”. In my neighborhood, they were called crooks.
What is even more galling about the entire Goldman story, is that they actually admitted that they cut and past financial products. The most important part they left out, in the testimony. Namely, after cutting and pasting the financial product to create a new product for a client, they add several zeros to the bill. Is that why people go to work with Goldman. To get the best and the brightest whose main interest is themselves and not the client.
They are definitely masters of generating returns. They had a perfect record for the first quarter, not a single day of losses in trading. If you switch from an investment bank to a commercial bank and are able to access the hundreds of billion of federal reserve money at nearly 0%, you don’t have to be too brilliant to make more than zero.
In the light of industry knowledge of how Goldman operates, and that the Dutch pension fund Transport pulled their 9 billion euro mandate from Goldman, how could our own minister of Finance be so morally bankrupt. The Minister of Finance, De Jager, decided not to exclude Goldman from lucrative government bond syndication. Didn’t Jan Cees de Jager (minister for finance) read this The headline read “Europe bars Wall Street banks from government bond sales • Leading US banks blamed for triggering financial crisis • Policymakers propose a rival European monetary fund” http://www.guardian.co.uk/business/2010/mar/08/us-banks-european-bond-trading.
We had written about the potential of reputation loss, last year, and the impact on investment banks. The association with Shell-Brent Spar & Nigeria, and Dow Chemical during the Vietnam War was quite similar, except the vulnerability of the banking sector was far greater. Whereas Dow was associated with products like Napalm and Agent Orange, Shell with Nigeria and Brent Spar, there was not much choice for alternative napalm producers or big energy companies. There are hundreds, if not thousands of investment banks that can cut and paste. This makes banks like Goldman extremely vulnerable to reputation damage, and its impact on hiring and business. It will be interesting to see how this plays out this year. Will investment banks actually learn from the past and start working in the interest of clients and other stakeholders. Having seen the testimony of Blankfein (CEO Goldman) and the testosterone financial engineer clones testifying before the Senate, I am not hopeful.