Streams

Goldman Sachs and Wall Street's Culture Problem

Thursday, March 15, 2012

Josh Brown, financial advisor aka The Reformed Broker, and author of Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments, to discuss the ripple effect of yesterday's New York Times op-ed by Greg Smith "Why I'm Leaving Goldman Sachs".

Guests:

Josh Brown
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Comments [52]

Peter Talbot from Harrison, NJ

The question is not about honesty. All trades are caveat emptor and all sellers are dishonest. The only function of a government is to legislate against known forms of dishonesty, but the US government sold the inheritance of the next three generations to give the banks letters of marque to attack the US currency with the repeal of Glass Steagal, the promotion of arcane derivative trades and a reduction in capital requirements between 1999 and 2005 while the rest of us were worrying about terrorists. Banks started uncontrolled gambling with other peoples' money with the proviso that their bets would be covered by the US Government in over its head due to the inanity of AIG and its Capitol Hill sponsors (yes, you Barney Frank,) then leveraging puppet rating agencies to rate garbage equity as triple AAA, then getting 100 cents on the dollar bailouts from Hank Paulsen, Tim, Ben and the rest of the post-Friedman bedwetters, then intoning sanctimoniously about the need for assured liquidity for more QE2++, then threatening to retire when the cash flow pressure seems to be slowing, all in time for the crash to become the greatest US depression since the 1870's is amazing. And the fact that trading in garbage securities and getting commissions for misrepresenting every aspect of every long and short call to every party to a trade is delicious. This isn't business: its piracy. The truth is that all CDO's are counterfeit currency to be dishonored and written off at zero cents on the dollar and all the banks should have failed to be replaced by new ones, with the Fed paying off according to FDIC rules. Instant balanced budget. Instant proper "creative destruction" of the wealth of speculators. If the banks wanted out of Glass Steagal they should not be provided with a safety net at the expense of my children's children. There are no democrats. There are no republicans. There is only the aristocracy of the dollar.

Anyone that buys securities or debentures in the rigged markets of the West without having at least 100 million in specie stored away in the Caymans now has the intellectual power of a gnat. The only winning move in this non-capitalist, anti-legal fiasco of a "market" is not to play.

Oct. 25 2012 11:24 AM
Eugenia Renskoff from Brooklyn, NY

Hi, I think the key word is honesty. No, I don't think that most people working for a large corporation like Goldman Sachs care about the customer/client. They just want to make as much money as quickly as possible.In this kind of environment they can't be too honest. But, we the people who lost ouyr homes due to foreclosure and predatory lending, must and should make them be honest. They work with our money. If a bank or investment institution does not have the people's money (the customer's money), they are not in business.They have to get into another kind of work in order to eat. Just like the rest of us. I have nothing against people being rich, but more honesty or nothing. Eugenia Renskoff

Mar. 17 2012 05:17 PM
Kari from Manhattan

Yeah, Josh Brown is clearly in the pocket of Wall Street (or at least he thinks he is). That's the only reasonable explanation for him making the patently absurd claim that the prevalence of unethical behavior on Wall Street is "just like in any other business" (no more, no less). What hogwash! Brian, couldn't you have challenged him on some of this?

Anyway, I was the caller that got cut off at the end of this segment. As I was trying to say before my line went out, my friend who was just laid off from Goldman Sachs on Monday is actually the person that sent me this article, and I was shocked to find that she agreed with it wholeheartedly. I'd always known her to be reliably defensive of Goldman and Wall Street in general, so her endorsement of such an unflattering view of the company was a real shocker. I guess now that her livelihood no longer depends on it, she's stopped trying to justify the industry's unsavory aspects. She's already had several job offers from hedge funds and other banks, but she's so sick of this constant push to bleed the world dry for self-profit that she's now decided to give up her 10+ year career in finance altogether and is trying figure out a way to work in an entirely different industry. I'm happy for her, and I'm happy that at least Greg Smith had the audacity to go up against the Vampire Squid and tell it like it is. Real, serious reform needs to come now, before any more governments, industries, and children's futures are made victims of Wall Street's money grab.

I'd also like to add that anyone who found Greg Smith's NYT op-ed refreshing will be absolutely BLOWN AWAY by asset manager Jeremy Grantham's recent 4Q investment letter, which paints an unflinchingly bleak and unflattering picture of Wall Street, its hold on government, the direction of our society, and even capitalism itself. I've never read anything like it from a Wall Street guy before -- especially not from the head of one of the world's biggest asset management firms. It's well worth giving a thorough read: http://www.gmo.com/websitecontent/JGLetter_LongestLetterEver_4Q11.pdf

Mar. 16 2012 01:07 PM
art525 from Park SLope

I agree that Josh Brown very much comes acroos as a hustler I thijnk the ethics teacher was a breath of fresh air to set striaght what Brown was saying.

Mar. 16 2012 10:26 AM

This is a very disappointing segment. This guy is an apologist for the industry, and it harms the points he seems to want to make. Even the true stuff he says sounds phony, because he's so clearly speaking from the point of view of a banker. You should have found a better guest, Brian.

Mar. 16 2012 09:38 AM
J from London

Hey Brian - I work in the London financial sector and "muppets" is a commonly used term for "idiots" - it's definitely not a compliment! At my firm, we tend not to call our clients muppets - we usually reserve that hallowed term for brokers and our less experienced competitors!

I liked Matthew Yglesias' take on the Goldman letter and the culture clash between client managers and traders at Goldman - the best explanation I've heard so far:
http://www.slate.com/blogs/moneybox/2012/03/14/goldman_sachs_and_the_rise_of_the_trader.html

I'm also surprised that no one has mentioned what a good resume builder this letter is - a viral NYT editorial extolling this guy's own virtues (note how he wove in his key resume tidbits throughout), including how he cared more about Goldman's clients than they do! Plus he kept the critique vague enough to keep the lawyers away. Genius - clients will be running his way now. And the press is eating it up because the anti-Goldman rhetoric is so popular now. Just a thought.

Mar. 16 2012 09:02 AM
Amy from Manhattan

There is another place people can take their money: socially responsible investment co's. It's not that they're not affected by market downturns, but SRI investors didn't lose as much when various bubbles (tech, subprime mortgages) burst, although the '08 crash was so massive it didn't spare SRIs.

Mar. 16 2012 02:15 AM
Roger from NYC

Did I just read this right?! (10:47 AM)

"Unless they are actors or athletes or have some other form of celebrity, folks earning these fabulous sums don't really earn it..."

Mar. 15 2012 01:33 PM
anna from new york

What isn't corrupt and ugly? The press? Medicine? Cultural non-profits? "Science?" Academia? What?What?What? Wonderful and charming American workplace in general?
I was thinking .... if I am correct, Goldman is this guy's the first and only American workplace. What does he know about wonderful and charming American workplace in general?
BTW, is it possible that this guy, deprived of what looks like any knowledge of history and societies was manipulated?

Mar. 15 2012 12:46 PM
tomcrisp from UWS

See this parody on the Daily Mash: Darth Vader , disgruntled Empire employee resigns.

http://www.thedailymash.co.uk/index.php?option=com_content&task=view&id=5007&Itemid=81

Mar. 15 2012 11:42 AM

RUCB_Alum~

Don't waste you finger strength; that coconut is hollow.

Mar. 15 2012 11:14 AM
jgarbuz from Queens

To RUCB-Alum

Here's the basic equation: Profits = "Wealth." Countries and other movements that don't learn or understand this basic equation eventually collapse, e.g., the Soviet Union.

But you are right that Marx came out of the school of "classical economics" but his attempt to turn it on its head, and state that profits = robbery by bosses from the "surplus labor" of their workers was pure balderdash, as every society following Marx's prescriptions has learned to its chagrin the hard way.

Mar. 15 2012 11:12 AM

C. E. Connelly from Manhattan~

I'd like to second your suggestion; why not get David (Rutgers prof caller) on to discuss this issue instead of the insider scumbag, "author" in denial?

Josh, peddle your irrelevant "books" elsewhere!

Mar. 15 2012 11:04 AM

@jgarbuz -

Adam Smith, not Marx, first noted the value-added at each step of the production process. Your over-emphasis on external markets to supply wealth is ludicrous...Though I think that we all can recognize that barter or trade-value is what most of us consider to be wealth.

Mar. 15 2012 10:59 AM

This guy, Josh Brown is a huxster, insider scumbag.

Mar. 15 2012 10:47 AM

Goldman's internal attitude toward greed is a symptom, not the disease. America's concentration of the country's income producing capacity into the pockets of the top percentile - one dollar out of two goes to the top quintile - or said another way, the 20% of the families get 50% of the money. Unless they are actors or athletes or have some other form of celebrity, folks earning these fabulous sums don't really earn it, they just have great compensation agents and their shareholders THINK they are worth it. They also use their position as insider to turn their stock options into short-term gold. Nice work if you can get it but eventually the string runs out. Government revenue suffers as the national income is shifted up into the pockets of folks who pay less of a percentage than the middle tiers do. What do they end up with other than spoiled wives and children?

Is there a tipping point? A point where the very republic is toppled by our ludicrous concentration of wealth? Does someone "who matters" have to die before we know that we have reached it?

Mar. 15 2012 10:47 AM

Could we please discuss the deference we pay and the collusion our "government®" maintains with these criminals?

Paulson®, Geithner™, $ummers® and ultimately our canonized pre$ident®, BO.

This is a systemic corruption of the highest order.

Mar. 15 2012 10:45 AM

A year ago I wrote about my very shady experiences working in Citigroup fixed-income Derivatives for the Boston Review in a piece entitled Legerdemath (there's also a sequel floating around the internet). When I was there fixed-income derivatives was on the 4th floor and equity derivatives (the type of group Greg Smith of Goldman fame described) was on the 3rd floor. One summer, my group decided to send me down to the 3rd floor to get some experience in equity derivates. What a difference a floor can make. In equity derivatives I encountered a group that was, at least to my young eyes, squeaky clean and very concerned with their clients' needs and interests. I remember one of my new co-workers turning to me once and saying something along the lines of, "I can't believe some of the stuff you guys do up on the 4th floor." I remember being speechless and making some kind of meek defense. I also remember then trying to transfer into equity derivatives, a risky move since it would alienate some people in my old group. I've always sort of thought back on equity derivatives as the positive counterpoint to my shady experiences in fixed income derivatives...so was a little depressed yesterday when I read Greg Smith's piece.

Mar. 15 2012 10:39 AM

David, the Rutgers ethics prof. caller actually sounded like he had an inkling of decorum.

Interesting - thanks for calling.

Mar. 15 2012 10:37 AM

I have not heard Josh Brown deny a single point brought up in this discussion. He has, however, done a terrific job attempting to justify this chronic corruption.

This guy Greg Smith is no hero, in my opinion. He made his fortune in the very system he says he despises. He can afford to "poison pen" all he wants - we're all still paying dearly for it.

These folks are disgusting.

Mar. 15 2012 10:33 AM
jgarbuz from Queens

To Peter Brownscombe

No, the idea that workers create wealth by making things is INCORRECT and the underlying flaw of Marxism. Wealth is created when the thing made is SOLD at a net profit, and that profit itself is the wealth that has been created. You need workers to make things, but if those things cannot be sold at a profit, then wealth has actually been destroyed.

Mar. 15 2012 10:32 AM
andy from manhattan

my perspective is that the pervasiveness of publicly traded companies have become the bane of a sustainable economy. everything changes when the company is looking at quarterly profit above all, instead of long term sustainability and health.

the loss of a company being so directly connected to its owners has cost business culture its conscience.

if people would concentrate on creating something innovative, new and needed by their own labors, instead of simply making money by having/investing money, we all would be better served. greed and laziness go hand and hand here.

not that i believe a big change will occur any time soon, but that's my take.

Mar. 15 2012 10:32 AM
Jose Ruiz from NJ

How much is Josh Brown being paid by Wall Street. It loks to me that all he is doing is trying to defend Golmam Sacks. Also he interrupted your last caller from telling her story.

Mar. 15 2012 10:30 AM
Peter Brownscombe from East Village

The financial services industry does not "make money." Wealth is created by people who make things, all Wall Street does is move that wealth around.

Mar. 15 2012 10:29 AM
Bob from Westchester, NY

I worked for a Wall Street law firm in the 1980s, and even back then the firm partners (themselves millionaires) were amazed at how much money the investment bankers took out of each transaction. We finally compared it to manufacturing companies which gave employees the samples of the products they made for free -- e.g., Anhauser-Busch would give each employee a case of beer at the end of the week, so Goldman, Lehman, etc. were giving their employees free cases of money.
Unfortunately, as your guest and callers point out, Wall Street firms give away the client's money, not the company's..

Mar. 15 2012 10:29 AM
John from Texas

Let me add to my pervious comment --

We often don't like them, but we accept Real Estate Brokers. They perform a useful service.

But we do not accept THE SAME REAL ESTATE BROKER REPRESENTING ME, THEY BUYER, IF THEY WERE ALSO REPRESENTING THE SELLER --- NO WAY!!!!

That, in a nut shell, is the Goldman problem. Of course, some will use this problem to attack Capitalism -- to me that is not the issue, the issue is simple CONFLICT OF INTEREST.

Mar. 15 2012 10:28 AM
Heather

Thanks to Prof. David for reminding us of the role and responsibility of Wall Street and the true definition of capitalism.

Mar. 15 2012 10:28 AM
C. E. Connelly from Manhattan

Good Lord! A sane caller who makes something other than the most obvious point! Can you have that ethics professor be a guest. Capitalism isn't a license to make an unlimited amount of money and how they benefit must be tied to what benefits they provide to the culture--what a simple, clear idea that I almost NEVER hear any one point out.

Mar. 15 2012 10:26 AM
simpsonsmoviesucked

Not long ago Goldman was so well thought of for being great at taking companies and industries to the next level. Profit through building firms. They needed smart people for those jobs!

TOday they need robbers. There is good news! My car hasn't been broken into for years!

Mar. 15 2012 10:26 AM

I worked for a big insurer - the biggest one when I was hired in the 70s. Their former banker CEO - first CEO not from inside insurance - took them public...They HAD been a mutual company. Does fiduciary responsibility exist any more? When Pru was found guilty of letting its newly acquired Bache representatives raid folks accumulated wealth in life policies and other instruments, we were heavily fined.

The culture that applauds freeing up bound capital and taking it is applauding theft.

Mar. 15 2012 10:23 AM
Kate from Wash Heights

Brian get the guy who just called (Davd) to be a guest on your show.

Mar. 15 2012 10:23 AM
jgarbuz from Queens

Wall Street is like Las Vegas, a necessary casino culture where the Houses always win, and the majority of fools who enter are soon parted from their money. But gambling has always been with us, and always will be.

Mar. 15 2012 10:23 AM

Why wouldn't Goldman want a repeat? The Bush and Obama administrations have told them, repeatedly, that there is nowhere to fall but up. As Paul Krugman, Simon Johnson, Nouriel Roubini, Dean Baker and many others have told us what we already knew — the President and Congress and courts have made clear to Government Sachs that the risk is socialized, the profit is privatized.

How can Josh Brown miss this when at least one of Krugman and others remind us of this every week.

We _know_ that Goldman was betting _against_ financial instruments exactly as they promoted them to clients. We know that Timothy Geithner was busy meeting with Goldman execs frequently but why is kept secret. We know that months after the financial crash and the government bailout with NO strings attached, Goldman and others were right back to what they were doing before.

George Akerlof co-authored his paper "Looting" 20 years ago. Congress and the President have created clear, unambiguous signals that greed and dishonesty and blind risk will be _rewarded_.

The Rutgers caller has nailed it — Greed isn't just good, it's applauded, rewarded, lionized.

Mar. 15 2012 10:20 AM
John from Texas

I would describe myself as an advocate of well regulated capitalism, BUT --

If Goldman is working for a fee -- a percent of the trade they do for me, GREAT

If they are trading for their own account, they make liquidity and they make (or lose) money -- OK

If they do BOTH, there is no way to avoid a CONFLICT OF INTEREST -- if they tell me to buy or sell, and they just happen to be selling or buying the same thing for their own account, THERE IS NO WAY TO AVOID A CONFLICT OF INTEREST -- are they trying to get me the best deal, or themselves the best deal -- THEY CANNOT DO BOTH.

Mar. 15 2012 10:20 AM
emmanuel from westchester

I think the revelations by this executive is only testament to how ignorant even top executives at these firms can be to how their business practices effect other people.

Mar. 15 2012 10:20 AM
Cindi from Seattle

I understand his point in the op ed. however suddenly saying you have morals when you're making probably $1m or more a year - whatever. I'd gladly sell my soul for 5-6 years to pay off the $120k in law school debt I've acquired.

Mar. 15 2012 10:19 AM
The Truth from Becky

It is an absolute slanderous remark. Nothing complimentary about it.

Mar. 15 2012 10:19 AM
Joe

Guys, I think Greg Brown was joking about calling his clients telletubbies, and being a little sarcastic about muppets being a term of endearment.

Mar. 15 2012 10:19 AM
Sara B. from nyc

Every so often everyone will detest, deride and attempt to defraud whoever plays the role of "client" in their particular workplace. The real problem is that many of those "muppets" were in charge of many other people's money and, therefore, their futures.

I hope that Greece calls in to your program today.

Mar. 15 2012 10:18 AM
Barbara Hoffmann from PA

I was a Institutional Fixed Income client of GS for close to 25 years and a large one at that. They have always been a dangerous dealer to work with. Particularly on the trading side of thins.

Mar. 15 2012 10:18 AM
John A.

I don't think for a moment that it's 1% greedy - all others exempt. It is and was greedy customers feeding a greedy industry. Start with yourselves.

Mar. 15 2012 10:18 AM
superf88

OMG, more breaking news: I heard McDonald's is selling HAMBURGERS!

Mar. 15 2012 10:17 AM
leo from connecticut

Greg Smith lived in London. In the UK, a muppet is a slang term for a chump or a stooge.

Mar. 15 2012 10:16 AM
Neil from Chelsea

Does your guest think Wall Street's powerful have reckoned with the ways its culture may have helped bring on or hastened the troubles of the last few years?

Mar. 15 2012 10:13 AM
emmanuel from westchester

I'm not sure I can commiserate with this resigned executive. Much of his nostalgia for "the good ol-times" of Goldman Sachs culture wreaks of white washing. Its not like making money is something new there. Evidence has surfaced that shows executives were well aware pre-2008 about the risks in the US housing market. But the culture is so absolute, and so integral to the world economy, that they made these marvelous schemes to multiply dollars anyways! I doubt any change will come from this bad press.

Mar. 15 2012 10:13 AM
Carlos from 10024

Come on - "Muppet" is not a term of endearment. It's utterly, utterly derogatory and is a display of total contempt.

Mar. 15 2012 10:13 AM
Gretchen from Wall Street

I dated a Managing Director at Goldman Sachs. I thought it odd that he called those working under him as "slaves."

Mar. 15 2012 10:12 AM
anna from new york

It's a distraction. Corruption is absolute and total, but the discussion is only of those areas which might affect the masters - the oil sheiks, the Slims, the Buffetts, the Oprahs, the Wintours, etc.
The NYT doesn't have a Labor section, doesn't discuss the torture of countless individuals (always the poor elderly), who die attached to machines for a single reason (profit), doesn't discuss the death of countless individuals who die in the fields after months (rarely years) of slavery, doesn't discuss the death of countless homeless pushed in the street by the Slims, the Buffetts, the Oprah, the Wintours etc., but OWS (Wall Street) is prominently featured.

Mar. 15 2012 10:11 AM
RL

George Costanza would be proud.

this is just the swing back after all these investment firms didn't know what to do with all that pension money over the past 2 decades. It's too much money flooding the market.

"...muppet is a term of endearment" ???? This dude is nuts!!!

Mar. 15 2012 10:11 AM

I know of no legal or business or economic scholar who thinks (as the guest apparently does) that Dodd-Frank has any teeth. The Obama administration has been dragged kicking and screaming to even the most minimal investigation of Goldman Sachs, AIG, Citigroup... crimes.

Can we get Josh Brown on a lie detector to see whether he actually believes he calls his clients teletubbies?

Mar. 15 2012 10:11 AM
Nathan from Hoboken, NJ

Honestly, is anyone surprised at all but the content of the NY Times Op Ed? He said what we all suspected.

Mar. 15 2012 10:08 AM

Wall Street has a culture problem in something of the way organized crime does. The difference is that the Gambinos actually help a lot of people -- just don't get on their bad side. But Wall Street helps none but themselves. And they help themselves by destroying the rest of us. How many trillions in debt do we now face to pay the bonuses of Lloyd Blankfein & Co.? And let's stop pretending that they paid off the bailout money. We now know — conclusively (but you'd never guess by reading the Times or listening to NPR) — that firms like AIG and Goldman used later federal funds to pay off earlier, bailout funds. We still don't know how many trillions in loan guarantees and zero interest loans the Fed and Treasury made. Obama, Geithner, and Bernanke have worked overtime to keep that secret.

I'll take John Gotti and Jackie the Nose D'Amico over Lloyd Blankfein and Jamie Dimon.

Mar. 15 2012 09:44 AM

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