<p>Agreed what is the Real story here? Whatever it is its in the background and wonder if the real story will ever come out. Also what is Smith’s motivation to make his comments so publicly. Reading the letter there are alot of "I"s and ego in there; the statement is as much about him as it is about GS. How does Smith stand to gain by his actions? And I am not casting negatives on him and I have no reason to protect GS. But there is a bigger story here. On the other hand I think anyone who works with GS has always known they will be the “second best treated party” in the transaction (because GS will be best treated) but those clients also know that is how they get their own best result. Plus GS competitors are similar in greed outlook just GS had reputation for being the best at making the most. Nothing in this letter was news to anyone with Wall Street experience.</p>
<p>Cross posted my last comment with above, is Smith writing a book and this salvo in NY Times is just prepublicity? Is that the motivation here?</p>
<p>Well, I think it was news to those clients when they found out they were being flat out lied to, 2born. Nobody expects to be treated “better” by GS than GS treats themselves, but the lying was a bit much, and they should have faced a lot worse than they did for that.</p>
<p>You don’t lie to clients. I think that’s fraud.</p>
<p>ETA: I don’t KNOW that he is writing a book, but I can’t imagine why else he would do this. Lewis became a made man, practically, when he savaged Solomon. I don’t know a lot of people who would want to take on GS for the benefit of publishing a resignation letter, personally. But, that’s just my guess.</p>
<p>“It will be better if he tells the muddy truth. He’s a young guy, DStark. It’s not like someone like you from before dereg. writing this letter. He wasn’t there before dereg.”</p>
<p>Poetgrl, Are you calling me old?</p>
<p>Thanks. :)</p>
<p>I think it took guts to write that letter about GS too. May work out for Smith…may not.</p>
<p>2born…</p>
<p>I think there were many clients of GS that did not understand how GS works before 2008.</p>
<p>GS used to be a well respected firm.</p>
<p>I have many clients that use GS as Futures Commission Merchant. Many of them have scheduled calls with us to discuss switching to another FCM. Interesting, but I think the same attitude (perhaps a bit dampened on average) is everywhere. FWIW, I am a Wall St. alum and am surprised this article is news, but it is! My clients are horrified.</p>
<p>yes, Mom, I was surprised it was news, as well.</p>
<p>But, yeah, I think it is news. I think that’s one thing. Lots of books, but who reads those books. </p>
<p>They did trade lower yesterday.</p>
<p>It’s surprisingly scandalous for something everyone on the street supposedly knows.</p>
<p>Momof2kids…</p>
<p>Yeah…the clients are not as aware as people think. I would think that clients would be more aware after 2008… I guess some aren’t.</p>
<p>And it isn’t just GS…</p>
<p>Am I crazy to think it may be time to BUY some GS shares? Opportunistic or stupid?</p>
<p>I don’t know, mnmom–</p>
<p>They do practically run the world. If you look at who is in the top government positions in europe and elsewhere, including the US, you will find Goldman alum all over the place.</p>
<p>But, I think you might be a little early?</p>
<p>I’m not sure the fall out has completely fallen. Does Buffet still own his shares? If Buffet still owns his shares the US government will protect the value since he is the only individual more powerful than goldman, and the government will do whatever they have to do to protect him.</p>
<p>The crap that Bank of America pulls is very well known but they seem to still have tons and tons of customers. I always wondered why they do so well. They have tons of ATMs - maybe that’s why?</p>
<p>Mom, interesting that people would be nervous about Goldman as an FCM, as I understand it FCM’s simply act as clearing agents on bilateral trades done OTC, and they have no dogs in the race so to speak, they simply help the customer’s clear the trades, so why they would be worried about that I don’t know.</p>
<p>As to why the guy published his resignation like this, I don’t know, occasionally people get a conscience about what they do, they get disgusted with what is going on and so forth, and will publish something like this. </p>
<p>One of the things I’ll caution people about is making blanket statements about things like derivatives or the famous one I hear bandied about with high gas and oil prices, ‘speculators’. Like with most things blanket statements like that tend to also throw the baby out with the bathwater, it is like Wall Street itself, it is bracketing the good, the bad and the ugly all together. Derivatives are tricky, and there is no doubt in my mind they have been abused in more then a few cases, and because of their unique nature they have been traded, as another poster said, without much transparency, and much of their trading and clearing was based basically on handshake deals with little scrutiny or risk management (One of the cute things coming out of the 2008 meltdown was, for example, people like Goldman creating CDO’s that were basically snake oil, and then buying CDS’s to insure them in effect knowing they would fail (kind of like insuring a wreck of a house for 10 million dollars, then having someone torch the place), or better yet, in more then a few cases, buying multiple CDS’s on the same CDO (like having multiple insurance policies on the same house without the insurers knowing that). Derivatives are used legitimately by people like power companies and oil and gas companies to hedge risks in rapid price movements which helps, among other things, keep prices for electric power and natural gas from fluctuating wildly when markets go nuts. They are also used by mutual funds and pension funds to hedge risks on their accounts where a lot of us have money. </p>
<p>Part of the problem IMO is that a lot of this trading has become detached from the real purposes of the markets. Hedge funds and high frequency trading firms trade huge baskets of products across markets,and what they are basically doing is trying to take advantages of blips in prices to wring out as much money as they can; what the actual underlying products are doesn’t matter to them, it is all about using sophisticated models and algorithms to jump in and out of instruments in literally less then a blink of an eye (5 or 6 years ago, the gold standard on execution time was roughly 100 milliseconds, or .1 seconds; today it is <1 millisecond). It has become detached from reality in many cases, prices get driven by whatever strategies someone is using, not by underlying reality. It is much like stock prices, that once were based at least in part by what a company was actually doing; today it is based mostly on the views of stock analysts, who often have very little clue of the reality of what companies do, to them it is all a world of numbers some idiots claim are real (and often are not; the CDO mess in part was caused by people jumping on a formula to value these instruments, that in effect based the value of the CDO on the CDS’s used to insure them [in effect, they assumed the people writing the CDS’s had some mystical knowledge of how to value the CDO’s and their risk]…everyone was using this formula, written by this Chinese guy, and we know the result (btw, in trading of derivatives and such, that is generally not the practice, companies spend a lot of time and money building their own formulas, part of the game is having a formula better then others). Likewise, with compensation as at Goldman and most other companies, being heavily tied to stock price, there is an incredible pressure to boost stock price, which often has negative implications of the long term health of a company…</p>
<p>I think people should be dubious of claims on Wall Street, and deregulation and more important, not regulating markets like derivatives was a disaster (more importantly, the real disaster was not having the safeguards on these instruments, when they grew to be big players in financial markets, in insuring risk in clearing and settling them, as well as transparency, and yes, a lot of this was the work of Phil Gramm and people like Larry Summers, who follow the University of Chicago party line that “businesses and markets operate rationally”, when they often don’t. The real trick is to separate the wheat from the chaff, and Goldman is no different; as critical as I am of places like Goldman and other banks for many of their practices, I also can tell you that they also have and continue to do good in other things, including new businesses getting a foothold and so forth. Likewise, ‘speculation’ and ‘speculative investors’ (i.e purely financial players) are not all bad for the markets, with derivatives used to hedge things like oil and gas contracts, or in other parts of the market, the speculators allow these firms to hedge risk which helps keep prices from really going nuts on commodities, since they often take the other side of those trades that might otherwise not happen. Having worked in the industry for a long time, one of the problems is when messes happen, like the 87 crash, the dot com bust, and now the derivatives mess of 2008, is that it goes too far the other way and you have a lynch mob mentality that can cause more harm then good.</p>
<p>Music - you are correct about the FCMs. In theory, there should be no concern because of the exchange protections. It is more an issue of wanting to disengage with a bank that would be so “anti-client” in other parts of the business and a fear that such a bank might be more susceptible to fraud (which was the beginning of the end at MF Global despite the exchange protections). </p>
<p>You and I are in agreement about derivatives (which is my field). Certainly the regulation is/was too lax and certain products were terrible ideas, but the vast majority of derivatives are used for good purposes and reduce risk and provide positive investment opportunity in the system. The trick is not throwing out the baby with the bath water. Dodd Frank is a nightmare, despite very honorable intentions to institute some well needed change.</p>
<p>Parent1986, I work for the government … about forty percent of the time. Not sure why you asked or cared.</p>
<p>So Xiggi…how is your job? </p>
<p>What is it like to work for the government?</p>
<p>xiggi, I thought maybe you were concerned because you worked in IB. And, I thought your comparison to AMD was interesting. Also, I have two kids around your age who are too busy with school and work to pay attention to current events, so I find it striking when other kids do :).</p>
<p>Smith is a relatively low level guy.</p>
<p>GS has 450 partners, then 1,700 managing directors, then thousands of executive directors (what Smith was).</p>
<p>Most surprising thing is that Smith was at GS for 12 years and still only an executive director.</p>
<p>DS, the government reference related to the fact that I work for “them” until about 1PM every day. Just like you probably do, although with the beauty of capital gain taxation, you might be off the hook by 11 AM. </p>
<p>I work in the education/technology field and enjoy my job immensely.</p>
<p>That’s great Xiggi. I am happy for you.</p>
<p>I start before 4 am…and I finish after you…</p>
<p>And these hours do suck.</p>
<p>We do get capital gains tax rates on some of our income…which is bs too.</p>
<p>We benefit by firms like GS running the country. :)</p>
<p>I am sure you are doing more for people than we are. I am really happy for you.</p>
<p>Mom-
I work in that area as well, helping build systems and interfaces that support those kinds of products. While Dodd Frank style regulation was needed, the problem is they can’t even decide what it means and some parts of it are questionable (for example, requiring that less then block size OTC trades be posted into a ‘crossing’ kind of auction on exchange screens before allowing it to get submitted for clearing, to allow potentially someone to ‘step in front of’ either the bid or offer side of the OTC trade at a better price, dubious at best). My take was the biggest piece was forcing this to be submitted to clearing houses to mitigate risk of Bilateral trades done by people like AIG with CDS’s, for example, that makes sense, since firms would be subject to risk reporting and have not only sufficient collateral themselves to cover deals (which AIG obviously didn’t have) but also spread risk among the clearinghouse members, that makes sense. Among other things, derivatives are usually trades as complex strategies which exchanges don’t handle well and are unlikely to get hit once on the screen:)</p>
<p>Musicprnt…why can’t exchanges trade these derivatives well?</p>
<p>Because…the derivatives are personalized? They aren’t conforming to existing derivatives on exchanges?</p>
<p>Because they are very large?</p>
<p>Or what?</p>
<p>You mentioned trades under 1 mls…</p>
<p>How long does it take the CME…or NSDQ or Arca or Bats to process trades in the colos?</p>
<p>Or are you just crossing trades in house?</p>