Thursday, March 15, 2012

How to Burn Bridges to Goldman Sachs

When I saw this New York Times Op-Ed this morning by Greg Smith on why he is resigning from Goldman Sachs after twelve years, I wasn’t sure I wanted to re-print it on this blog. After all, it’s already gone viral on the internet, and everyone from Bloomberg to the Huffington Post have now commented on it. Even Rolling Stone magazine has spoken, in effect declaring that the "giant vampire squid" has spit back one of its own. The initial news reporting cycle is complete. So I asked myself two gating questions: What does a disillusioned banker’s leaving GS have to do with Asia’s One Percent? Why do I need to jump on the Goldman-pinata bashing bandwagon?

After chewing on my organic breakfast cereal and staring at this picture of Goldman’s Lloyd Blankfein (I’m not sure which one gave me more gas), I decided that this NYT editorial is in fact an event that is significant enough that I should toss my own humble opinion onto the cacophonous heap of commentaries being made.

Goldman Sachs CEO Lloyd Blankfein testifies be...

First of all, I was never a fan of Goldman Sachs. I couldn’t afford to be. While I was a banker at Morgan Stanley and Lehman Brothers before then, Goldman was a towering competitor; they were out to eat every other bank’s lunch. Feeling any admiration for GS was a dangerous, almost self-defeating, emotion, like facing Roger Federer across a tennis net. Holding begrudging respect for Goldman was as close as many of my colleagues got. When clients talked about how strong GS was, our response was invariably, “yes, but you never know which side that you are on with them. Goldman only looks after Goldman.”

That was twelve years ago. Since then, all the evidence in the media, including Blankfein’s own tin-eared performances in front of congressional investigative panels since the GFC, points to an alarming erosion in a client-oriented culture, an affliction that hit all banks. Lehman Brothers and Bear Stearns died because they became their own casino. Other banks such as Morgan Stanley and Merrill Lynch also diluted their customer agency business and efforts to do the good work of raising money for corporations by beefing up their own proprietary books. It damn near killed them, as well. From all appearances, Goldman was somewhere in the middle – trying to delicately juggle a long-term client-driven franchise with a trade-for-our-own-account strategy that generated eye-popping profits. And for a while, they were amazingly good at doing it. They danced better than anyone else at the ball and wore the best gowns. Until the music stopped in 2008. But dancers hate not dancing, even when the tunes have been silent for some time. Instead, they plead with the band, “play! play!”

On the other hand, I am a fan of banking as an industry. Saying anything to the contrary is like saying that I don’t like my body’s circulatory system. Banking is the lifeblood of the world – the flow of money is as important as spirituality and intellectualism in defining our humanity. Without money, we'd still be trading stone tools for bison parts. However, like many of my finance industry friends and colleagues, I think that it is a terrible shame that the system has gotten so clogged with cholesterol and blood doping agents that periodic heart attacks are now seen as inevitable. Unless you are one of the people profiting from stuffing pizza and EPO (otherwise known to laypersons as “derivatives”, of which CDOs are only one form) into the bloodstream, it’s impossible not to see the risks posed to everyone.

Greg Smith’s letter is a barometer of where public opinion has gotten to. It’s one thing for him to post a blog entry or Facebook-status update or tweet about his departure from Goldman Sachs. If he chooses to risk burning a bridge to a former employer and branding himself as a “whistle-blower” that could jeopardize his chance for future employment, so be it. Hats off to someone who acts in his conscience in that way. But it’s another thing for the New York Times to print his letter as an Op Ed and have it catch fire across the global business media. No doubt that Greg will be held up as something of a hero by a still-irate public in a debate that is sure to rage for many more months.

A friend informed me that Goldman hired a new PR head earlier this week. His job just got a helluva lot more interesting! Not to mention Lloyd Blankfein’s.

As a closing note, I want to restate my opinion how vital the banking sector is. Most bankers that I know are incredibly industrious, honest, smart and deserve to be paid extremely well. Without them, Asia would not have achieved the kind of growth that has lifted so many millions (and soon billions) out of poverty and fulfilled countless dreams. But clearly, some areas of banking, particularly derivatives, have gotten far too bloated and self-indulgent. Clearly, Greg Smith’s unit was one of them. It’s noteworthy that he was in charge of equity derivatives units, not corporate client coverage. Too many bright young Chinese students these days want to enter banking because of the tempting pay levels and the lure of “inventing new financial products.” That’s a shame. The world needs new financial products like it needs new variety of chocolates. What it really deserves is a right-sized banking system that can pump clean blood at a healthy flow rate, so that wealth creation and growth can be steady, without being subject to lurches and collapses.

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