Goldman Sachs is a Predator and a Cheat

There have been many reactions to Greg Smith's resignation letter and some have been from apologists for Goldman Sachs.  Most writers seem to think, however, that Goldman is a predatory bank that uses unethical means to make huge profits.  So why is Goldman still here pretending to be the ultimate example of investment banking?  Good question.

Our blog has been covering many aspects of Goldman's behavior and these behaviors seem to be reaching a larger audience all the time. The two articles below discuss, first, the Goldman stress test results and, second, the predations of Goldman.

The capital plans of Goldman Sachs and Morgan Stanley were approved by the Federal Reserve regulator even though their leverage ratios dropped below 4 percent during the so-called "stress tests."  According to Shiela Bair, a former regulator, Goldman is too leveraged and should not be "boosting its dividend or repurchasing stock."  In other words, it failed the stress test but passed anyway--some regulation!

Goldman Faces Calls for Payout Curbs
By Yalman Onaran - Bloomberg Businessweek

Goldman Sachs Group Inc. (GS) should be prohibited from boosting its dividend or repurchasing stock because Federal Reserve stress tests showed the investment bank is too leveraged, according to former regulator Sheila Bair. 

The leverage ratios of four financial firms dropped below 4 percent under the stressed scenario, according to test results the Fed released this week. Two of those firms, Citigroup Inc. (C) and MetLife Inc. (MET), were prohibited from raising dividends or repurchasing shares. The central bank approved the capital plans of two others, Goldman Sachs and Morgan Stanley.

“No distribution should have been approved that would bring the leverage ratio below 4 percent,” Bair, the former chairman of the Federal Deposit Insurance Corp., said yesterday in an interview. “With leverage of 25-to-1, during a crisis, these banks would likely suffer a run.”

Read the rest of the article here

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Culture of Predation:  That Goldman Sachs Exposé Barely Scratches the Surface

By Richard (RJ) Eskow - HuffPost Business

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But Smith's revelations aren't really news at all, and the moral decline he describes at Goldman has been replicated throughout our corporate culture. Behavior at Wall Street firms like Goldman may have been more overtly criminal, but the shift from respect for the customer to the desire to rip customers off is pervasive and insidious.

Wall Street has, of course, been the epicenter of this behavior. Years ago it was reported that traders at Morgan Stanley used to get off a phone call and gleefully shout "I ripped his face off!" -- about their own clients -- after successfully selling them what they knew were garbage investments. The surprise isn't that Goldman Sachs encourages its employees to mislead clients and put its own interests above theirs -- the surprise is that anybody is surprised.

We should know better.

Capitalism has always been based in part on predatory behavior. But a series of progressive reforms that began more than a century ago managed to bring the predators among us under control. Laws and regulations were a key part of that control, but a four-decade long conservative crusade against them has brought us to the point where Democratic presidents can echo the anti-regulatory rhetoric of the right without fear of reprisal from their own base.

We need to restore the respect that regulations and those who enforce them have earned over their decades of service to the country. But there needs to be even greater change -- cultural change -- before we can stop the kind of behavior that Smith described in his editorial. We need to end the culture of predation and stigmatize the corrupt business leaders who are tearing our society down.

It's true that Blankfein's a particularly egregious example of the culture of predation. But there isn't an executive on Wall Street whose company hasn't done things he should be ashamed about -- and shunned for. And many of them should be under criminal investigation right now. Instead they're attending plush fundraisers with leaders from both parties and whining to subservient journalists that today's coverage of them isn't universally congratulatory. These guys don't want reporters, they want praise-singers like the ones that flattered ancient princes -- and more often than not they get them.

But the culture of predation goes way beyond Wall Street. It's all around us. Here's an example from my own corporate life: While I was working in the insurance and risk management area back in the 1990s, a group of us were sent to one of those offsite 'bonding' get-togethers that were so popular at the time.

Read the whole article here