The Real Truth About Goldman Sachs...
Companies / Banking Stocks Mar 16, 2012 - 07:02 AM GMTBy: Money_Morning
Shah Gilani writes:
By now you've heard about Greg Smith.
He's the former executive director of Goldman Sachs (NYSE: GS) who pulled a Jerry Maguire on Wednesday while resigning from the illustrious Vampire Squid.
In his New York Times op-ed piece, otherwise known as the scorched-earth letter, Mr. Smith explained that he resigned from Goldman because he could no longer abide by the firm's culture of ripping-off clients to line their own pockets.
The blunt frontal assault on the firm he once revered was a career move. What kind of career move remains to be seen.
But before I get into what really goes on behind Wall Street's velvet ropes and what Mr. Smith's pronouncements about Goldman's culture says about Goldman, let me say this about his future employment prospects.
I'd come out of retirement and start a new hedge fund if Mr. Smith would come on board.
In fact, after hearing all the hoopla about how he has burned any and all bridges he might have had as a Goldman alum and how he'll never work on The Street again, I can't help but laugh.
And I'm not the only one.
Bill Singer, a noted New York securities attorney who's not shy about speaking his mind openly and honestly, said to me, "Seriously, if the guy has as little as a $10 million book of business there'll be people all over him to come on-board. Not only that, but there are a lot of firms that would want to throw this in Goldman's face by hiring the guy."
Greg Smith's Jerry Maguire-like moment might just be the best career move he's ever made.
And I'm serious; I think he'd be a great addition to my new hedge fund operation. What do you say Greg?
Nothing New About Goldman Sachs
One thing is for certain: as biting as Smith's commentary was on Goldman Sachs, there were no new revelations about how the firm operates.
The bottom line about Goldman, according to Smith's op-ed piece, is that "people [at Goldman] push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client's goals. Absolutely. Every day, in fact."
Like I said, Smith's not delivering any revelations. It's not an insight into just Goldman, either. This mantra is essentially the Street Creed.
Wall Street only needs clients to make money for itself.
If you don't understand that, you don't know how the game is played − or how it's won.
The pinnacle of success on Wall Street is not having to have any clients. In other words, you've got so much money that you spend all your time making yourself more money with your own money.
But that's a fool's game.
Because the real truth is that if you're that successful managing money, trading, or doing deals, you want client money to play with.
Sure, the good guys pool their money with their clients, and that's the kind of manager and banker everybody wants to be in bed with.
But, no matter how big you get yourself, you'll never be as big as the sum of the client money you can manage and profit from.
Ultimately, having clients makes you money when you win, and doesn't cost you much when you lose, because it's their money your losing.
You may lose a client here and there, but there are always clients to be had. There are always "elephants" to bag.
However, Goldman takes unique advantage of its position on the Street. Not that all the other banks don't do the same, or try to − they do.
But Goldman's perceived power keeps clients coming in the doors and keeps unhappy clients from leaving, too.
The Real Truth Behind Goldman Sachs
Of course you're going to hear that this is all nonsense, and how Goldman couldn't survive if it constantly ripped off all its clients.
Well, the truth is it doesn't rip off all its clients all the time.
There are always sacred cows at every firm that aren't messed with and are treated with white gloves. Why? Because they're either too big to lose, too lucrative to mess with, or too high profile to ever get into a pissing match with.
As far as the rest of the clients?
They're there for the taking with excessive fees, front running, and saddling with insane swap deals that keep making money for the likes of Goldman (can you say Greece?) while sinking clients into such a hole that they have to do another swap to get out of the first one that's sinking them. And that next one, you better believe it will cost you.
Muppets? That's what Mr. Smith says clients have been referred to as. That's cute.
With all the cursing and name-calling on the Street, calling clients Muppets is laughable to me. After all, referring to clients as puppets is like calling the Grand Canyon a ditch.
Whatever they're called, they are something else very important. Clients are tools.
They are used to make money for the firm. Sorry, folks, the truth is the truth. Besides, you already knew that.
What Greg Smith was saying about Goldman is that it has changed. And, of course, he's right.
It has gotten better at making money by ripping off its clients for bigger and bigger fees and commissions.
The culture that Greg Smith thought he was becoming a part of has been in rapid decline since the day Goldman went public, right about when Mr. Smith joined the bloody fray.
No, there were no revelations in Greg Smith's letter to The New York Times.
There are no hidden truths about Wall Street. Its bare-knuckled, winner-take-all tactics are front and center and woven into the lining of every banker's custom-made suits.
We'll see what becomes of Goldman's own Jerry Maguire and we'll see what becomes of Goldman Sachs.
The question is whether there is enough room for both of them on Wall Street.
Source :http://moneymorning.com/2012/03/16/je...
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