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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Monday, August 23, 2010

Goldman Sachs Mishandles PR Campaign To Enhance Its Image

This article appeared in the New York Times On Line Business Day page.  It is a good story of how big corporations like BP, Toyota and our good friends at Goldman Sachs no little about PR when it comes to crisis management.  

While the article is somewhat long (7 pages), I have reprinted the part talking about Goldman.  To view the entire article, and I suggest you do, click here.

In Case of Emergency: What Not to Do

Doug Mills/The New York Times
Lloyd Blankfein of Goldman Sachs, on Capitol Hill after the bank was accused of fraud. The firm has taken an aggressive public relations stance against critics.

 ...beginning from end of page 5 of original article
A Laser Focus on Profits
If there was panic and chaos inside Goldman Sachs, the company kept it hidden, maintaining a consistent communications posture throughout its brush with unwanted scrutiny: Yield little.
Yet in opting to mount an aggressive defense, the company appears to have intensified criticism. As many communications experts see it, Goldman took a series of unsavory but not crippling disclosures about how it profited before, during and after a global financial crisis and — through a public relations strategy built on arrogance and insensitivity to the national mood — turned itself into a symbol of Wall Street shenanigans.

(Page 6 of 7)
Given the loss of jobs, homes and savings attendant to the financial crisis, Wall Street was bound to face sharp questioning about its role in the collapse. Goldman, in particular, seemed certain to confront special scrutiny by dint of its hefty profits, its proximity to pivotal moments in the crisis, and its former executives’ ubiquity in Washington’s corridors of power. 

Goldman’s first round of questioning began in the wake of the $85 billion federal bailout of the American International Group, the insurance giant, in 2008. Goldman owned insurance policies from A.I.G. on some of its mortgage investments. Analysts, journalists and federal authorities all raised questions about whether Goldman unfairly benefited from taxpayer funds used to bail out A.I.G.
Such questions were fueled by the résumé of a prime architect of the bailout, the Treasury secretary Henry M. Paulson Jr., who had formerly led Goldman. (Mr. Paulson has said that he never took action to specifically benefit Goldman, seeking only to buttress the financial system as a whole.)
Like Toyota, Goldman has had internal debates about how forthcoming to be in confronting sharp questioning, with some insiders advocating a swift, unabashed disclosure of its dealings with A.I.G. to avoid inflaming public anger, according to people familiar with the deliberations who requested anonymity because the talks were confidential.
As Congress kept examining Wall Street’s role in the crisis, federal investigators made Goldman the first major firm to face legal charges associated with the nation’s housing debacle.
In April, the Securities and Exchange Commission filed a lawsuit accusing Goldman of securities fraud in marketing a mortgage investment that was built to fail without fully informing clients of its provenance. The hedge fund manager who selected contents of the investment, John A. Paulson, profited mightily, but the banks on the other side of the deal lost more than $1 billion, according to the S.E.C. suit.
Some analysts contend that Goldman, in adopting a defensive posture to queries about how it snared a large piece of the A.I.G. bailout, effectively put itself in front of an onrushing train: an S.E.C. determined to find a high-profile case that would eclipse criticism that it had failed to police Wall Street effectively.
Once the S.E.C. filed its case, bloggers and pundits seized it as proof that Goldman was rigging the financial game. Others criticized the lawsuit as flimsy.
Goldman maintained that it had done nothing wrong, asserting it had merely enabled sophisticated investors to make opposing bets on the mortgage market.
Analysts say that this may have been a smart legal defense — Goldman ultimately settled the case for a sliver of its profits — but in the public eye, it intensified views that Goldman hadn’t played fair. Never mind its supposed role in enabling American commerce: Goldman was now dismissing allegations of fraud by arguing that, in essence, it had been running a giant casino, in which it had inside information.
How badly did these revelations play? Mr. Anderson, at M.I.T., sees parallels to the sexual abuse scandal in the Roman Catholic Church.
“The priests thought they should be protecting one another rather than the children in their care,” he says. “Goldman now has the same problem. It turns out it’s, ‘We make money for ourselves first, and our customers second,’ when it should be the other way around. This is going to hurt them for years.”
Goldman faced an added complication in that its business was arcane and many of its products were exotic. Toyota and BP faced more clear-cut crises that could be conveyed with a simple image or sentence: you could see the oil sullying the gulf, the cars careering out of control. Goldman was accused of failing to disclose details of something called a synthetic collateralized debt obligation, a term that made readers seek refuge in the sports section.
Experts say murkiness could have worked in Goldman’s favor, had the company adopted a conciliatory stance. But Goldman has concluded that the obscurity of the bank’s business may be the source of its problems, says its head of corporate communications, Lucas van Praag.
“The issues we have aren’t rooted in bad communications,” he says. “They’re a direct function of our business model. One of the things we’ve learned is it may be perfectly legal but if it’s too complicated to explain to ordinary, rational people, then maybe it’s a business we ought not be in.”
Like BP, Goldman saw its troubles aggravated by ill-advised sarcasm from its C.E.O., Lloyd C. Blankfein, who told a reporter for The Sunday Times of London that he considered banking as “God’s work.” Here was another story kit thrown to the press corps, an easily digested narrative to replace the tedious work of explicating Goldman’s mind-bending financial arrangements.
Some argue that Goldman’s notoriety may matter little to the bank’s main constituents: shareholders and clients. Toyota and BP both sell products to ordinary consumers, making image maintenance a crucial concern. Goldman, on the other hand, generally confines its work to serving extremely wealthy people, companies and governments. Its success depends not on being liked, but on being respected for a pursuit that sometimes pulls in the opposite direction — racking up profits, even amid calamity.
Analysts say Goldman’s P.R. woes are compounded by a reality bigger than any one institution: it is a leading investment bank at a time when investment banks are as beloved as bedbugs, airlines and Congress.

(Page 7 of 7)
“It’s a problem of making obscene amounts of money in ways that no one understands in the middle of an economic meltdown,” suggests Mr. Dezenhall. “I don’t think there is a way to make people love a bank that earns money in the middle of a recession.” the continuation of page 6 as well as the full here 

 Good PR - Bad PR, Who Cares?
Yes, they muffed their PR and honesty is usually the best policy but if honesty and as a result integrity were important in the course of doing business today, none of these things would have happened to begin with.

Let's face it, when it comes to profit in our mighty mega corporations today, safety, be it physical or financial, has no importance.  Our food supply is tainted as evidenced by the recent recall of billions of eggs that contaminated.  Our financial products are contaminated and laced with fraud and our vehicles seem to have faults that can kill us.  The actions by BP, as reported by some, foregoing safety for production (profit) created an ecological disaster that many of us will not live long enough to see its true consequences on our Gulf and environment.  For those of us that will be around, what will it really be like and what dangers will we encounter as a result?

As to the actions of Goldman Sachs and the ensuing worldwide financial crisis, we have not seen the end or the ultimate consequences of that yet either.  With much of the wealth of the world's population stripped out, hunger and homelessness and lack of affordable medical treatment increasing (I am speaking especially of here at home in the U.S.), what will the real issues and consequences be?  Will Goldman have contributed to the destruction of our way of life here as we have known it.  Have they destroyed that old motto and American Dream - a roof over everyone's head, a car in the driveway and two chickens in every pot (that was the goal back in the 50's).

The truth is, as I see it, is that the actions of Goldman Sachs along with their bankster buddies aided by the politicians we elected to protect us, will change the way of life of our millions of baby boomers  whose retirement incomes were stolen.  It will change the life of our children who will never have the same opportunities we once had.  In fact, instead of our children having a better lifestyle then we, they will for certain not even get close to what we had that they were raised in.  I have 4 children, all with college educations struggling at a time equivalent in my life I was enjoying the benefits of my hard work and dedication.

Goldman Sachs, as the NYT's article points out mishandled their PR and did not perform adequate crisis management, I say even if they had, the results you and I and our children are living with each day would not have been different.  Retirement funds would still be gone, homes in the millions would still be foreclosed on, food stamp participants still would increase to levels never before seen and those unemployed and underemployed would still be the same.

The problem with PR is that the U.S., its regulators and lawmakers spun the PR to the benefit of the guiltyl instead of publicizing the truth.  We need to talk more about how our Government handles or shall I say mishandles "Crisis Management" as well.


Anonymous said...

Stock Swing Still Baffles, With an Ominous Tone

Mr. Donovan, a man with a runaway chuckle who works alone out of the company’s office in Santa Barbara, Calif., poses a theory that a small group of high-frequency traders was trying to introduce delays into the nation’s fractured stock-market trading system to profit at the expense of others. Clogging exchanges or otherwise disrupting markets to gain an advantage may be illegal.
“There is a credible allegation that there is seriously abusive practices going on,” said James J. Angel, a financial market analyst specialist at Georgetown University, “to the extent that somebody is firing in a very high frequency of orders for no good economic reason, basically because they are trying to slow everybody else down.”

In an Aug. 5 letter to the Securities and Exchange Commission, Senator Edward E. Kaufman, Democrat of Delaware, warned about a “micro-arms race that is being waged in our public marketplace by high-frequency traders and others.” He said that the traders were moving so fast that regulators could not keep up.

Anonymous said...

The media is a tool...and guess who controls it?..Big'll always see a helicopter tracking some runaway pickup truck in the middle of no where but you'll never see them haunting some big wig living off ill gotten gains in the Hamptons or MV...they play us like fools!

Mainstream Media is Crushing Public Confidence

Mainstream media is putting its resources on superficial stories instead of covering news that really affects your life.

JR said...

So I see that China is learning how to do business by watching Goldman Sachs! That is a scary thought.
What will they really learn?

China's Hot New Bestseller: "The Goldman Sachs Conspiracy"

Bill Bishop, Sinocism

Yesterday I bought a copy of Li Delin’s (李德林) latest book-“高盛阴谋” (Goldman Sachs Conspiracy). Li is a well-known financial journalist and author who has written several other books, including the November 2009 “干掉一切对手——看高盛如何算赢世界 (Eliminate All Competitors–How Goldman Sachs Wins Over the World”. You can read Li’s blog (in Chinese) on Caijing here.

More here:

JR said...

Anonymous above makes good points re: Mainstream Media. In Canada we have a public broadcasting system called the CBC. As it gets some of its funding from the Federal Government, it has to work hard not to be influenced by government policy. Usually they do a good job. Now, however, we have a reform Conservative PM who is trying to change things. His government is making life miserable for the CBC by not increasing funding; by not respecting the journalists who try to find out what the PM's policies are or why he takes certain actions, in fact, by disrespecting them and bypassing them as much as possible (sometimes politicians refuse to appear on programs to explain their policies); by the government creating its own "media" that gives out propaganda to Canadian citizens; and so on.

Some detractors accuse the CBC of left wing and socialist bias.

Unfortunately, the CBC president is chosen by the Prime Minister. CBC programming is suffering and programs are losing public support. CBC needs a gigantic overhaul and needs someone with imagination and creativity to lead the way.

I think CBC is equivalent to PBS and NPR which, I know, are not federally funded in the US.

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