The Squid Gets Slimed


I can only ask “what took you so long?”

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

From who’s perspective?  Goldman’s?  Obviously not.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way.

Oh really?  Look, let’s get right down to it — Goldman isn’t the only firm that does this.  In fact, we have over 100,000 admitted acts of screwing not just with people but with court process in the “robosigning” mess.  That’s not “taking advantage”, it’s perjury, and it’s not an allegation it was admitted to by the act of withdrawing the affidavits.

The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

Such a sad song.  The problem is the disingenuous nature of this “confession.”

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

It’s not illegal to intentionally mislead people about what you’re selling them and how it was constructed?  That’s what the allegation was with Abacus, you know.  It’s also at the core of the entire ALT-A and “Subprime” lending bubble.

“Fog-a-mirror” loans are not illegal.  What’s illegal is bundling them into securities and representing that they have certain credit qualities when you either know they don’t or have every reason to know but intentionally avert your eyes.

The textbook definition of fraud is the act of intentionally misrepresenting a material fact to someone with the intent of inducing them to enter into a transaction they would otherwise not entertain, when that material fact (or facts) are then a proximate cause of loss.


These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.

What model are we talking about?  Remember, the model for banking in the United States has been for more than 20 years that when you rob someone and get caught the penalty is that you have to give some of the ill-gotten profits back.  Nobody goes to jail and there is no punitive sanction — ever.

It seems that the model is working exactly as intended.  Of course the problem with this model is that eventually the public may wake up to it and either (1) demand that Congress put a stop to this and that the DOJ enforce the damn law or (2) decide that neither Congress or the DOJ will do so and thus either (a) eschew doing business with said institutions or (b) take justice into their own hands and start decorating lampposts.

I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.

No change will come from the board so long as the people of this nation stand for this sort of blatant robbery.  The fact of the matter is that a half-million citizens are paying 400% higher sewer bills in Jefferson County Alabama due to another big bank getting the county involved in hinky derivative deals that had no probative value for the county and in fact were entered into in part as a consequence of bribes.

This isn’t speculation or assertion it is fact as documented by the convictions (and guilty pleas) of some of the people involved.  Yet not only did the institutions involved not find themselves being prosecuted under criminal law they also didn’t have to give all the money back they made and unwind the deals at their own expense so that (1) there would be a punitive sanction imposed on everyone involved sufficient to deter it from happening again and (2) far more importantly, the victims would be compensated and not be forced to eat the loss that occurred as a result of the now-proved “beyond a reasonable doubt” criminal behavior.

Oh incidentally, when it comes to Jefferson County Goldman appears to be involved in that deal in a round-about sort of way.  It appears, if Matt Taibbi’s reporting is correct, that Goldman was paid off by JP Morgan to stay out of the transaction.

That report, if true, is blatant anti-competitive behavior and thus illegal under long-existent law.

And this is just one example, albeit one that has and is continuing to hose a half-million people for the benefit of a handful of bigwig executives and traders.

Until lawless behavior is prosecuted as zealously when a big bank does it as when someone walks into the corner branch and says “stick ’em up!” nothing will change.  Until the people of this country rise and demand that prosecution be zealously pursued starting with those who have stolen the most from the largest number of people there will be no reason for corporate boards to take note of and demand adherence to the law by the employees of these firms, say much less anything that can be reasonably called ethical behavior.

It will be a sad day in America when the people of this nation finally snap and take matters into their own hands.  Nobody in their right mind wants to see that outcome as the rule of law cuts both ways and everyone, even vampire squid, are entitled to due process.

But if the lawlessness of the last decade and more is not reversed that day’s dawn in America and elsewhere is also inevitable.

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