Posted on 09/07/2010 11:17:34 AM PDT by SeekAndFind
Michael Lewis recently offered another interesting explanation for a statement made a few months ago, "Goldman Sachs is doomed."
The reason the company is doomed is their status as a public corporation, he told Vanity Fair, because it allows them to justify barely legal activity that stops at nothing to profit.
A few months ago, the author said Goldman Sachs was doomed because it would never recover from its PR disaster-causing SEC case. Its customers would never be able to trust them if they had a problem with honesty. No customers, no business, went his argument.
Now Lewis has changed his tune. Goldman's problem is that it does too much for its clients, he says, some of its clients anyway.
He told Vanity Fair:
"The minute it becomes a public corporation there is this moral justification for bad behavior."
That was the "beginning of the end," he says. When Goldman went public is when Goldman traded a “long-term greedy” attitude for a “short-term greedy" one.
The beginning of the end of the Goldman Sachs I admired was when it ceased to be a partnership.
As soon as that happened, he says, employees at Goldman Sachs had to do right by their shareholders. The easiest way to do that is by ripping off anyone who isn't a shareholder.
(Excerpt) Read more at businessinsider.com ...
We certainly have different definitions of the word "moral".
“Greed is good” Gordon Gecko
“Money Never Sleeps” Gordon Gecko
Spoken like a true communist. I can point out a dozen crooked “non-profits” right off the top of my head.
Huh? Lewis is a good writer. A lot of BS that goes on at GS and went on at Salomon Brothers (his first book) is how investment banks rip off taxpayers like YOU. Read his first book about how Salomon, Lewie Ranieri, Guttfreund, John Meriwhether and others were screwing taxpayers on - what else - mortgages.
Try to do some reading to understand what the h*ll is going on next time.
In his classic book, Liar's Poker (I would recommend this book to anyone with even a mild interest in economics and politics, since his stories from the bond industry in the 1980s are still relevant today), Lewis traces the ultimate demise of Salomon Brothers (his employer) to the moment the partners of the firm decided to sell the partnership and become a publicly-traded company. His point was that the business model changed completely from that point forward, and he actually saw his own hiring as a sign that the company was focused on unsustainable short-term growth rather than on hiring competent people. LOL.
RE: Lewis is simply saying that the publicly-held corporation’s only responsibility is to get its CURRENT shareholders the most return possible. Even if it means TOMORROW’s shareholders will find themselves screwed, from the consequences of actions taken today.
He might as well describe a lot of America’s corporations nowadays, not just Goldman.
CEOs are mostly interested in short term gains (because a lot of them want to profit and get their bonuses NOW). Who cares what happens several years from now ? I ( me the CEO) might not even be around then.
One thing that America will always have a dearth of as a result of this mentality is COMPANY LOYALTY.
Lewis went to great lengths to point out that Salomon Brothers made tons of money simply by being the only Wall Street firm involved in what was considered an unfashionable market (mortgage bonds) in the early 1980s. They could successfully bid 85 cents on the dollar for mortgages that weren't attracting any attention from investors, then watch those mortgages get paid off at full value in a very short time frame due to default by the borrower or some other reason for prepayments (e.g., condo conversions for apartment buildings).
So Apple [public] is less moral than Cargill [private]?
RE: Salomon Brothers
Corporate Cowboys these bunch of people are.
Salomon was a partnership until the early 1980s, when it was acquired by the commodity trading firm then known as Phibro Corporation.
This proved a “wag the dog” type merger as the parent company became first Phibro-Salomon and then Salomon Inc.
Salomon trader Paul Mozer was caught submitting false bids to the U.S. Treasury, in an attempt to purchase more Treasury bonds than permitted by one buyer between December 1990 and May 1991.
Salomon was fined $290 million, the largest fine ever levied on an investment bank at the time, weakening it and eventually leading to its acquisition by Travelers Group
Eventually Salomon was acquired by Travelers Group in 1998, and following the latter’s merger with Citicorp that same year, Salomon became part of Citigroup.
Although the Salomon name carried on as Salomon Smith Barney, which were the investment banking operations of Citigroup, the name was ultimately abandoned in October 2003 after a series of financial scandals that tarnished the bank’s reputation.
Of course Citigroup eventually had to be RESCUED by the tax payers as a result of their involvement in the subprime debacle.
Anything new ??
Not necessarily. His point was that the fiduciary responsibilities of the management in a publicly-traded company can sometimes serve as powerful influences for management to do things that they might not otherwise do if they owned the company entirely.
Lewis cited this as one of the "small" things that the company used to do as a partnership that came to an end under their corporate ownership.
Michael Lewis, formerly a Wall Street trader, is a good writer and has some pretty good insider looks at Wall Street. For a left winger he does try to keep his lefty editorialization out of his books. But that does not mean he will not slip and revert to left wing loon when he is asked his opinion. Looks like someone made the mistake of asking his opinion.
Very good information there. Just as an FYI . . . Michael Lewis’ book focuses on the short period of time when he was employed there (the mid-1980s), with some historical references to the earlier days of the firm when he went into great detail about the history of the mortgage bond industry.
Lewis describes this very conundrum in the later chapters of Liar's Poker, when he found himself facing a personal moral/ethical dilemma between looking out for the company's bottom line (by selling risky bonds they held on their own books) and looking out for his customers' best interest (by steering them clear of the risky bonds the company was asking him to dump on them).
It seems he made a general statement about public companies then made his case by focusing on a specific industry. Banking has been especially dishonest lately but have private banking companies been less dishonest? I think the pressures to be dishonest are there regardless of whether you manage a private or a public company.
There had been a trend, haven’t seen anything about this lately, of moving public companies private. In fact I read stories 10 years or so ago warning about a coming shortage of public company stock.
I personally have worked at both public and private companies and I highly prefer privates.
Goldman Sachs and the Art of “Ripping Your Clients’ Faces Off” !!!
http://www.freerepublic.com/focus/f-news/2500879/posts
Note: Goldman actually used the phrase
“ripping your own client’s faces off”
... in internal emails.
They were bragging.
About themselves.
Nice, huh?
For all of those who DO NOT live in NY nor work in the financial industry -— you should learn to know and fear these people. They earn billions using the method mentioned above, while many others struggle to get by. And they really don’t care.
That’s why they have mockingly named you “fly-over country”.
I do not think that the danger of allowing investment banks to go public was that they would rip off anyone who is not a shareholder. The danger was that they historically muted risk by using low leverage when they were private partnerships since the bankers own capital was at risk.Once they were allowed to go public and they were playing with shareholders money and their own capital was no longer at risk is when the investment banks started increasing their leverage to Too Leveraged Not to Fail levels like 30 to 1.
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