Monday, March 19, 2012

On Honeybees and Goldman Sachs

  I met a bee keeper who told me that honeybees are misunderstood. "They only sting you when they are attacked - or sat on," he said. They don't like to attack because once they sting an attacker they die, disemboweling being a fatal side effect. When this happens, the bee sends out a chemical 'smell' which warns the other bees, and they then attack the killer (if they weren't already).
  While I was listening to these fun facts I couldn't help but mentally compare bees' behavior to that of human beings in financial markets. Financial markets players are part of a large hive - the markets, and smaller hives - their own companies. In terms of the 'market hive' if someone on the outside attacks, say a regulator trying to lay down new rules, the entire market hive tries to fight off the attacker. In terms of a 'company hive' if someone from outside the company hive attacks the employees (worker bees) gather to defend the hive.
  But what happens when someone from inside a hive attacks, as did the infamous (for now) Greg Smith did with Goldman Sachs? The company's queen (Lloyd Blankfein) and a higher-up worker bee (Gary Cohn) gathered the other worker bees and rallied to the cause that is Goldman Sachs. But the market hive seized on that moment of perceived weakness, in what is arguably one of the strongest hives, and savaged its share price. GS shares fell by over $4.00, instantly wiping over $2bn off of its market cap. All because a worker bee revolted.
  What does this tell us about human behavior? That company hives host honeybees which are protective of their own, and that market hives consist of giant hornets that savage a company hive at the first sign of trouble.
  In order for a company hive, that is as strong and secretive as a Goldman Sachs, to survive within the greater market hive it probably needs to be a private company. As a public company Goldman's creates envy and jealousy in the market hive. As my gym pal told me, a stinging bee will spend its dying moments distracting its victim by flying around its head as if it were going to sting again. Greg Smith's stinger is gone, along with (probably) his career. But the buzz continues. Goldman's needs to keep its revolting worker bees under control.

Thursday, March 15, 2012

Goldman Op-Ed: The Words "Well Duh" Spring to Mind

  UPDATE 03/16: A very good piece in the NYT about the JOBS Act and how it will open the door to financial fraud, possibly fueling another dot com boom. Perhaps the NYT is on a crusade to support new financial regulation? If so, I will lend my support. (But I still don't approve of printing op-eds from disgruntled bank employees.)

  03/15 BLOG: The Op-Ed column in the 03/15 edition of the New York Times, written by a disgruntled Goldman Sachs employee, created quite a stir in the media. My immediate reaction to the piece was: "Goldman Sachs? A toxic atmosphere? Ripping off customers? Well, duh!" Goldman Sachs is an investment bank, an aggressive and highly competitive trading entity. Of course customers get ripped off. Naturally the atmosphere gets toxic. Has Greg Smith (the GS quitter) ever been inside another investment bank for crying out loud? I remember when London banks started writing structured derivatives contracts in the early 1980's, designed to "help" third world countries manage their debt. These deals were openly called "ripping their faces off". Traders have been calling naive people on the other side of trades "muppets" since, well, The Muppets. (The op-ed furor is now being called "Muppetgate"! LOL)   And where did the warm and fuzzy feelings Smith experienced at the beginning of his GS career come from? Maybe leftover from the initiation period where gung-ho types gee-up the new troops for action. Still, it took 12 years to realize the truth? C'mon.
  The puzzling thing is - why did the NY Times run the op-ed at all? Plenty of disgruntled, fired and passed-over-for-bonus employees must send in letters every day. Does someone on the editorial board have a grudge against Goldman? The NYT would do well to remember that Wall Street pays bazillions of dollars in taxes to New York City and state, plus hires hundreds of thousands of people who read the NYT on their way to work every day. It seems the paper might have bitten one of the hands that feeds it.
  I enjoyed the media frenzy, along with send-ups by Stephen Colbert and Dave Borowitz and other comedians, most of whom had never heard of Goldman Sachs only five years ago. Our little world - Wall Street and the City of London - has made the mainstream. Unfortunately for Greg Smith. He will go in down in history (a very short history) as a whiner - or whinger as we say in England. I don't fancy his chances at another job in the industry.