Point / Counterpoint: On Vampire-Squid-Busting

Concerning Greg Smith’s very public repudiation of his employment at Goldman Sachs, Matt Taibbi (no surprise) is a big fan:

… The resignation will have an effect on Goldman’s business. The firm’s share price opened this morning at 124.52; it’s down to 120.72 as of this writing (it dropped two percent while I was writing this blog), and it will probably dive further. Why? Because you can stack all the exposés on Goldman you want by degenerates like me and the McClatchy group, and you can even have a Senate subcommittee call for your executives to be tried for perjury, but that doesn’t necessarily move the Street.
But when one of the firm’s own partners is saying out loud that his company liked to “rip the eyeballs out” of “muppets” like you, then you start to wonder if maybe this firm is the best choice for managing your money. Hence we see headlines this morning like this item from Forbes.com: “Greg Smith Quits, Should Clients Fire Goldman Sachs?
This always had to be the endgame for reforming Wall Street. It was never going to happen by having the government sweep through and impose a wave of draconian new regulations, although a more vigorous enforcement of existing laws might have helped. Nor could the Occupy protests or even a monster wave of civil lawsuits hope to really change the screw-your-clients, screw-everybody, grab-what-you-can culture of the modern financial services industry.
Real change was always going to have to come from within Wall Street itself, and the surest way for that to happen is for the managers of pension funds and union retirement funds and other institutional investors to see that the Goldmans of the world aren’t just arrogant sleazebags, they’re also not terribly good at managing your money

Felix Salmon, Reuter‘s finance blogger, not so much:

It’s that time of year — think February to March — when bonus checks have cleared and voluntary departures from investment banks spike. So it’s obvious why Greg Smith quit now. The question is, why decide to quit in as public and destructive a manner as possible?…
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Goldman Sachs and the Galactic Empire from Star Wars. Mirror images in so many ways

Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.  On the way out the door, he penned a little self-congratulatory op-ed for the NY Times, titled “Why I am leaving Goldman Sachs” about how Goldman has lost the plot and is no longer a great place to work after twelve years of service with the firm.  One would have thought that as a senior executive with the firm, responsible for hiring and mentoring new talent, that he’d be in a position to do something about that.  I’m just sayin.

The internet being what it is, there is already a parody of this letter out there on The Daily Mash.  “Why I am leaving the Empire” by Darth Vader.  It’s spot on, too.

Read the Smith op-ed.  It’s got some important points, but I think the most important feature, once one gets over the holier than thou moralizing and the self-reverential bragging is that an insider just confirmed what everybody else has known or suspected for a while now.  The Vader op-ed, conversely, reveals a deeply thoughtful individual who has matured greatly from the whiny bratty teenager of  episodes II and III.

UPDATE: Andy Borowitz has the reply letter from Goldman CEO Lloyd Blankfein (also a parody).

Open thread, while we’re at it.



Some Things Must Be Posted…

…because there is no way I want to miss the Balloon Juice snarkasaurus masticating this:

<div align=”center”><table style=’font:11px arial; color:#333; background-color:#f5f5f5′ cellpadding=’0′ cellspacing=’0′ width=’512′ height=’340′><tbody><tr style=’background-color:#e5e5e5′ valign=’middle’><td style=’padding:2px 1px 0px 5px;’><a target=’_blank’ style=’color:#333; text-decoration:none; font-weight:bold;’ href=’http://www.colbertnation.com’>The Colbert Report</a></td><td style=’padding:2px 5px 0px 5px; text-align:right; font-weight:bold;’>Mon – Thurs 11:30pm / 10:30c</td></tr><tr style=’height:14px;’ valign=’middle’><td style=’padding:2px 1px 0px 5px;’ colspan=’2′><a target=’_blank’ style=’color:#333; text-decoration:none; font-weight:bold;’ href=’http://www.colbertnation.com/the-colbert-report-videos/405930/january-15-2012/colbert-super-pac-ad—attack-in-b-minor-for-strings’>Colbert Super PAC Ad – Attack In B Minor For Strings</a></td></tr><tr style=’height:14px; background-color:#353535′ valign=’middle’><td colspan=’2′ style=’padding:2px 5px 0px 5px; width:512px; overflow:hidden; text-align:right’><a target=’_blank’ style=’color:#96deff; text-decoration:none; font-weight:bold;’ href=’http://www.colbertnation.com/’>www.colbertnation.com</a></td></tr><tr valign=’middle’><td style=’padding:0px;’ colspan=’2′><embed style=’display:block’ src=’http://media.mtvnservices.com/mgid:cms:item:comedycentral.com:405930′ width=’512′ height=’288′ type=’application/x-shockwave-flash’ wmode=’window’ allowFullscreen=’true’ flashvars=’autoPlay=false’ allowscriptaccess=’always’ allownetworking=’all’ bgcolor=’#000000′></embed></td></tr><tr style=’height:18px;’ valign=’middle’><td style=’padding:0px;’ colspan=’2′><table style=’margin:0px; text-align:center’ cellpadding=’0′ cellspacing=’0′ width=’100%’ height=’100%’><tr valign=’middle’><td style=’padding:3px; width:33%;’><a target=’_blank’ style=’font:10px arial; color:#333; text-decoration:none;’ href=’http://www.colbertnation.com/full-episodes/’>Colbert Report Full Episodes</a></td><td style=’padding:3px; width:33%;’><a target=’_blank’ style=’font:10px arial; color:#333; text-decoration:none;’ href=’http://www.indecisionforever.com/’>Political Humor & Satire Blog</a></td><td style=’padding:3px; width:33%;’><a target=’_blank’ style=’font:10px arial; color:#333; text-decoration:none;’ href=’http://www.colbertnation.com/video’>Video Archive</a></td></tr></table></td></tr></tbody></table></div>

Have at it folks — and don’t worry, there’s plenty for everyone.

Things falling apart

Does anyone have an idea what will happen when Greece runs out of last-minute stopgap tricks? I suppose it means that the major players in Europe all get their bets called at the same time. As I understand from Duncan Black (an actual economist!, but no link because his search function blows) almost everyone ‘hedged’ their position by selling each other insurance. That way when party A runs aground party B finds its insurance unexpectedly worthless, making its position untenable and putting party C in jeopardy since they bought insurance from party B. The only party in Europe that might have the power to move enough money around to change the current dynamic, the ECB, cannot do anything because fixing the problem might cause inflation. Those shiny bank vaults turn out to be full of cotton wads and shredded newspaper, and in a week or two ex-stockbrokers are beating each other with rocks over a can of beets.

Or maybe I am being too optimistic. Anyone?


While we’re talking about search functions, I am pleased to update my earlier negative review and report that Steve Benen’s site now has a search function on par with our own. That is to say, meh. But better.

Mini Madoff

It’s been a rough couple of years for Jon Corzine, and it looks like things are about to get worse:

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

As of right now, it looks to me that Corzine, another Goldman wonderboy, thought he was invulnerable:

Now, the inquiry threatens to tarnish further the reputation of Mr. Corzine, the former Goldman Sachs executive who had sought to revive his Wall Street career last year just a few months after being defeated for re-election as New Jersey’s governor.

When he arrived at MF Global — after more than a decade in politics, including serving as a Democratic United States senator from New Jersey — Mr. Corzine sought to bolster profits by increasing the number of bets the firm made using its own capital. It was a strategy born of his own experience at Goldman, where he rose through the ranks by building out the investment bank’s formidable United States government bond trading arm.

One of his hallmark traits, according to the 1999 book “Goldman Sachs: The Culture of Success,” by Lisa Endlich, was his willingness to tolerate losses if the theory behind the trades was well thought out.

So far, this reads to me like every out of control gambler in every two bit casino in the country- the losses are mounting, and instead of walking away from the table, going home and telling the wife that you spent the rent check, you mortgage the house and raid the kid’s college fund and double down because, as we all know, if these bets hit you will be in the clear! Be nice if my suspicions are wrong, but I really doubt it. That’s the mentality of these guys. They aren’t shrewd businessmen, they are reckless gamblers.

Pretty Boy Floyd Had Nothing On These Guys

Towards the end of last week, John pointed out the clueless sociopathy of Jay John Carney’s view of insider trading as a victimless crime.  (Here, the string “Jay John Carney” should be read as “your liberal media at work”) [update:  oops.  Apologies to the distinguished White House press sect’y.  And how do you spell “brain bubbles?”]

I just want to add that John’s reaction — that someone using private information to gain an advantage in a two-party trade has got a victim all lined up — is not merely obvious; it’s been studied.

That is: you can imagine a hand waving argument that because each party has their own reasons to enter a transaction, then even the “outsider” on an insider trade gains what he or she desires from the exchange, otherwise they wouldn’t make the deal.   Since that motivation is untouched by the knowledge that the counterparty possesses and they do not, what’s the problem?  That’s my rough approximation of the glibtard case, at least.*

The problems with this crayon-level argument are pretty plain, I’d say.  The most glaring, to me, is that assumes that each choice exists only within the narrowest possible slice of time.  Or, as an economist friend of mine put it in response to Carney’s “reasoning” (sic!):

The argument that trades are voluntary so everyone benefits is clearly only true ex ante – that is to say on the basis of the original biased information.  The guy who gets stiffed clearly wouldn’t have made the trade if he’d had the same information as the insider.  You might as well make this argument to justify dodgy second hand car sales or street trading swindles.  The guy who buys a lemon from the dealer who has hidden its faults expected to make a gain but that doesn’t mean he actually does or that the dealer isn’t a crook.


Beyond any mere ridicule of the rich-people-can-do-no-wrong that defines the Village view, the point I think John was making is that insider trading has both individual victims — those who were cheated out of what they would have gained had there been full knowledge of what was going on for both parties to a trade — and systemic costs that we all bear.

Surprise! That turns out to be something people actually know something about

Read more

Garbage In, Garbage Out

And the DC/Wall Street revolving door for members of the money party continues:

If you missed the announcement late last week that Goldman Sachs hired former Republican Sen. Judd Gregg to be an international advisor, don’t blame yourself.

It came out Friday when most people were thinking more about the long holiday weekend ahead than the latest effort by the investment bank to add to its stable of worthies an influential former Capitol Hill lawmaker.

Anyway, the former senator from New Hampshire who, as you’ll recall, turned down President Obama’s offer of the Commerce Secretary’s job, will join Goldman’s board of international advisors, nearly 20 former corporate chief executives and government officials.

Their role is to use their smarts, experience and connections to help Goldman make as much money for its shareholders and clients as possible and to avoid situations like one The Wall Street Journal recounts in which Goldman, through bad financial bets, lost 98 percent of the value of a 2008 $1.3 billion investment by Libya then tried to make it up to the Libyans by offering them a large ownership interest in Goldman.

No shame. I guess Goldman and Gregg have decided that he has effectively avoided any charges related to the Abramoff scandal, so now his “connections” will be useful.