An look inside the vampire squid, Goldman Sachs

Yves Smith, who run the always outstanding Naked Capitalism blog, worked briefly at Goldman Sachs a number of years ago. Today, she offered an insider's look at the predatory culture at one of the biggest predators of them all.

Is Goldman Finally About to be Leashed and Collared?

Goldman may have made a fatal mistake. Fatal not to the existence of the firm, but to its standing, reputation, legitimacy, and ultimately, to the thing it covets most, its profits.

Power is most effective when it is used as sparingly as possible. Niall Ferguson, in book The Cash Nexus, stressed the importance of financing to military success (he argues that England was able to punch above its economic weight due to its superior tax collection apparatus and more highly developed bond markets). The Rothschilds, which among other things financed governments at war, went to some lengths to underplay their influence so as not to threaten their state patrons/clients.

The problem is that the behaviors that contributed to Goldman’s commercial success have over time become unbalanced, and are putting it at odds with governments. It is one thing to abuse the likes of a Jefferson County, as JP Morgan has. As deplorable as that behavior is, they cannot retaliate. It is quite another to mess with bodies that really are, ultimately, bigger than you are.

When I was young and worked briefly at Goldman, the firm was a pig and let even the very junior staffers understand precisely how its pigginess worked so that they would improve upon it when they grew up. For instance, on the deals it lead managed Goldman managed its stock and bond syndicates so as to extract as much as possible, to the disadvantage of other members of the syndicate, who shared the underwriting risk. I was told that Goldman was far more aggressive than other firms in hogging the deal revenues than any other firm on the Street, but could get away with it as a major lead manager. Similarly, on another deal, I walked into the Syndicate department when one of the most powerful partners at Sullivan & Cromwell was on a conference call, instructing the younger members of the department what the right answers to questions would be when the SEC came in asking questions on what they were about to do on this particular transaction, an underwritten call (note: what made Goldman savvier than most firm was that everyone got the official rationale for technically legal but questionable behavior BEFORE they did it, which made it much easier to maintain party line, rather than after the fact, when some conversations and communiques might contain remarks that were decidedly unhelpful. Note that this practice was well established over two decades before e-mails became pervasive).

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