Friday, March 16, 2012

More On Greg Smith Quitting Goldman Sachs

In my previous post, I shared a little about the op-ed that is now the talk of town. In fact, the issue is being analyzed to the death even as we speak. As I had shared, there was also a parody made from it. Here is another piece of analysis by Felix Salmon from Reuters:
Clients know in principle that every time they do a trade with Goldman, Goldman makes money. But they don’t know how much money Goldman makes on those trades. And Goldman is extremely good at structuring deals which can’t easily be replicated by combining various liquid derivatives. In turn, that gives Goldman pricing power — so much power, indeed, that in some instances the bank will go so far as to insist that if the client attempts to get independent pricing for the contract in question, then the whole deal is off. 
Smith has been in this business for 12 years, and he’s done extremely well by it. And to a certain extent, if the people who work for him are constantly asking how good a deal is for Goldman, rather than how good the deal is for Goldman’s clients, then that’s because of the example he set. What’s missing in his op-ed is any sense of mea culpa, any sense that he was at all part of the problem.
There’s a strong smell of faux-naive coming from Smith’s op-ed. “Leadership used to be about ideas, setting an example and doing the right thing,” he writes. “Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.” Here’s a question for him: back when he made videos for Goldman urging candidates to join the company, were the people who got promoted those who had ideas and did the right thing? Or were they the ones who made lots of money for the firm? To ask the question is to answer it.
Apart from the serious ones, here is a chart from Alphaville which is more lighthearted in nature (Click to enlarge):