Goldman Sachs, Business Standards and the Critics
by Robert Teitelman
Editor-in-Chief, "The Deal"
in The Huffington Post
Goldman, Sachs & Co.'s release of its 67-page report of its business standards committee on proposed internal changes in practice has been met with skepticism -- with one exception. The Wall Street Journal Wednesday chose to interpret it as a sign that investment banking is making a comeback at the firm. The report "showed how Goldman is trying to reassert the traditional primacy of deal making while playing down the firm's recent reliance on trading. One of the bigger reasons why: Trading caused most of the turmoil, suspicion and reputational damage suffered by Goldman since the financial crisis erupted."Alas, the paper puts forward a surprisingly flabby thesis. That last statement about blaming traders more than bankers is true -- although most of the nonfinancial world regularly fails to distinguish between "investment banking," "trading" and "Wall Street," or know what these folks do every day. Given the complexity of causes into the crisis, the notion that "trading caused most of the turmoil" is also a stretch. And the ascendancy of trading at Goldman was "recent" only if by "recent" you mean the late '90s, around the time of its public offering. Jon Corzine, trader, became CEO in 1994, which was a sign not of trading hegemony but temporary trading pre-eminence. By the new century, however, and despite Corzine's ouster by banker Henry Paulson, trading was providing, year in and year out, an increasing portion of Goldman's revenues and profits, often past 80%; a trader, Lloyd Blankfein, then succeeded Paulson. This renders Gerald Corrigan's statement to the WSJ, "I've always felt the kind of man- or woman-in-the-street point of view that... the securities side was dominating the firm was an overstatement," arguable, at best. Beside the fact that Corrigan, Paul Volcker's sidekick at the Federal Reserve and former New York Fed chairman who is co-chairman of Goldman's business standards committee, which wrote the report, is talking up his own book here, notice the haziness of that "overstatement," which can mean almost anything. As for his reference to the man- or woman-on-the-street, again, such every persons don't really know much about Goldman except perhaps what they got from Matt Taibbi in Rolling Stone. It's a straw person.
More substantively, given Goldman's size and its role as a public company, it's a little hard to imagine Goldman's banking group, which still boasts unparalleled coverage, generating the kind of results from "deal making" in a way to satisfy the quarterly desires of its shareholders, not to say employees anticipating high compensation. We at The Deal might wish that this was not the case, but M&A remains cyclical and competitive. Trading, at least as Goldman has pursued it, has greater flexibility and, as hedge funds have long argued and as the firm proved throughout the crisis, can make money in good markets and bad. Thus, one should be suspicious about talk of bankers getting their political mojo back at Goldman or, in fact, that the firm is about to return to, say, the '80s, when a "client-first" ethos actually still had a chance of being clearly articulated. Goldman was then much smaller and a partnership that defined itself as an adviser or intermediary. For a time it claimed to only practice M&A defense, a policy quietly abandoned by the '90s. Finance itself was smaller and simpler, and its conflicts were more straightforward. Today, the simple notion of "client first" presupposes that you can discriminate, prioritize and manage a bewildering number of customers with different interests on different parts of any given deal. It's not just a matter of Goldman's interest versus some customers; it's a matter of which customers to reward, which ones to hammer and which ones to pass silently by.
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