Thursday, March 15, 2012

Mr. Smith Goes to Wall Street

 The emails came pouring in yesterday, from friends and family, all with one, innocuous question: "What did you think of the 'Why I Am Leaving Goldman Sachs' editorial in the New York Times?"
 The fact is I hadn’t read it: the day-to-day utility of op-ed pieces in any newspaper are slim-to-none, and the Times—with its special brand of high-and-mightiness combined with the kind of straight-faced hypocrisy only a family-controlled institution can maintain in the public marketplace (the recently ‘retired’ CEO at that organization, which prides itself on a devotion to egalitarian causes such as unjust CEO payouts, recently received a $23.7 million exit package for leading the Times over a 7 year period during which its share price dropped 80%)—is no exception.
 Nevertheless, I did read the piece, and I am still scratching my head at why it got so much attention.
 After all, the odd mix of shameless self promotion [“I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video”] and playing-to-the-audience self-righteousness [It makes me ill how callously people talk about ripping their clients off”] sure sounds like a Goldman guy talking.
 Besides, did he think he was taking his “bronze medal for table tennis” to work for UNICEF?

  Anybody who has worked with, around and against Goldman Sachs (and I’ve been doing that, on and off, for almost 30 years) knows what apparently never crossed one man's noble mind: Goldman Sachs is, and was, and always will be, run for the benefit of its partners and shareholders.
 How otherwise to explain the fact that Goldman’s return on equity—the most basic measure of a company’s profitability—puts its peers to shame year after year (40% in a good year, 5% in 2008, the worst-year-since-the-Great-Depression)?
 More personally, I first became aware of Goldman’s clout well before Mr. Smith Went to Goldman Sachs.
 It was in the early 1990’s, and Robert Maxwell, “the Bouncing Czech,” was using company pension money to prop up shares of Mirror Communications Corp—a company I was short (betting against) because of its obvious financial shortcomings.
 So obvious were those shortcomings that the only wonder (in my mind) was the stock never seemed to go down.  The firm I was with—a client of Goldman Sachs at the time—eventually threw in the towel on our Mirror Corp short when the cost of borrowing the shares (through Goldman Sachs, I might add) made it too expensive to bother with.  While Mirror Corp eventually collapsed (after Maxwell was found floating dead in the Atlantic Ocean), it was too late to help: we had already moved on.
 But it was a great lesson that has stayed with me to this day: I learned, the hard way, that whoever was backing up Robert Maxwell had more money than we did...and in the end, money, rather than noble intentions, wins on Wall Street.
 Still, did I write an op-ed for the Wall Street Journal about how unfair the Mirror Corp short squeeze was?  No.  We bit the bullet, and moved on.
 That’s what you do on Wall Street.

 Now, in case you are wondering who was helping Robert Maxwell in those days, the answer is contained here, in the UK Department of Trade and Industry report on the Maxwell scam.

 For the record, the report states: “The investment bank with whom he principally dealt was Goldman Sachs.”

 Mr. Smith should have done his homework.



Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2011)    Available now at Amazon.com

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The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  The content herein is intended solely for the entertainment of the reader, and the author.

15 comments:

Martin said...

Maxwell's body was found floating on the Mediterranean Sea, not the Atlantic Ocean.

Jeff Matthews said...

Well, actually it was off the Canary Islands, which are in the Atlantic.
JM

de mortuis nisi bonum said...

in that case, "bob" maxwell would be more apt.

Martin said...

Mea culpa; I verified and you're right. At the time this event was in the news, I really thought that I read his body was found floating on the Mediterranean Sea, but it was on the Atlantic Ocean instead. My memory failed me.

Jeff Matthews said...

No worries! I had the same recollection on the first draft...then checked.
Cheers,
JM

Tahoe Kid said...

How does one float "on" body of water? i thought the only one to do that was Timothy Leary.

Anonymous said...

I loved the article, should have been in US Magazine which is a favorite of mine. I howled at the part about getting a bronze medal in table tennis at the Maccabi Games. Competitively speaking that is on par with getting 20th place in the Iowa State Softball Championship for Working Women Over 40.

Mike said...

Perhaps a naive comment and wishful thinking, but nonetheless it would be nice if the investment profession, like other learned professions, embodied a sense of "Professionalism", a code of conduct which, to quote Atul Gawande from "The Checklist Manifesto":
..has at least three common elements:

First is an expectation of selflessness; that we who accept responsibility for others will place the needs and concerns of those who depend on us above our own.

Second is an expectation of skill: that we aim for excellence in our knowledge and expertise

Third is an expectation of trustworthiness: that we will be responsible in our personal behaviour towards our charges

Jeff Matthews said...

Well said. And if your average politician followed that creed, which he doesn't, we'd be in much better shape as a nation.

JM

Anonymous said...

Jeff - I think the mistake in your thinking is assuming that all who interact with GS are aware of it's blatant self-interest. While many of us professionals have known this for a very long time, I'd daresay that most of Goldman's non-institutional high net worth clients have been under the impression that GS's job was to make money for clients, not for the firm itself. The publicity that this article has gotten (no doubt magnified by GS's competitors such as myself) will be a wakeup call to many clients who have been blissfully ignorant to date.

unlock iphone 4 said...

I think the mistake in your thinking is assuming that all who interact with GS are aware of it's blatant self-interest

Jeff Matthews said...

"Unlock iPhone 4" is amusing.

JM

Anonymous said...

Jeff:
Any take on today's NYT article on GS and Copper River. I was mostly interested in this:
Both of the firms sued by Overstock have denied the company’s accusations. They have requested that the judge overseeing the case seal all the documents generated in the discovery process, contending that their release would disclose trade secrets about the business, known as securities lending, which is highly profitable for the firms.

Do you have an idea what in general the trade secrets would be? It seems to me at least that GS responsibilties in this type of trasaction are pretty clear.

Jeff Matthews said...

Anonymous asks about the Goldman article in the NY Times, which everyone who does business with Goldman ought to read.

As for the "trade secrets" involved in stock-loan, I'd bet they're more like "muscling the client secrets."

JM

Anonymous said...

jeff

off topic, but..

can you put up your classic post, 'The Usual Suspects'?

I notice it has been taken down

thanks in advance.