The Goldman affair - and why they made money

Goldman Sach’s untarnished, teflon-like exterior must be starting to get to people in the US. There’s a fearsome whirlwind swirling around the bank this week - based on very nearly nothing.

This all started with a column in the New York Times by Ben Stein in which he essentially charged the bank’s leading economist, Jan Hatzius, with putting out an over-done fear note which ultimately benefited Goldman’s proprietary short positions.

And thus the storm was unleashed.

Felix Salmon, who’s hatred of Stein runs so deep he dissects his efforts weekly in his Ben Stein Watch post, got stuck in. As did….everyone else: Paul Krugman, Stein’s stablemate at the NYT, Dean Baker, Yves Smith at Naked Capitalism, Roger Ehrenberg at Information Arbitrage, Dealbreaker on repeated occasions - the list of those queueing up to have a pop at Stein’s work, summarised here again by Salmon, goes on and on and on.

The charges laid against the column are multiple but include broadly that Hatzius wasn’t just cage-rattling with his prediction of a 15 per cent slump in house prices, that Goldman sold the CMOs that Stein is complaining about a year before they made buckets on their shorts, and that Stein doesn’t understand how investments banks function.

For the defence, CNBC’s Charlie Gasparino weighed in arguing that “all shops talk their book”, alongside a handful of others including Howard Lindzon.

Phew. The reaction was so fierce that the whole business has now transmuted into a media story.

For our part, we’d note that the only follow-up in Blighty was in the Telegraph, which did a straight write-up under the title “Columnist questions Goldman motives.” Which we thought was an odd decision.

Now, sensing an easy headline or two, the politicians are involved, with Senator Chris Dodd, chair of the senate banking committee echoing the concerns raised in the piece and asking Hank Paulson, formerly head of Goldman, to address the issues, and make dark hints about formal investigations.

In return, Felix Salmon offers his opinion that Mr Dodd has lost his mind. This could run and run.

The trouble is that while its peers have been forced to write off billions and kiss goodbye to their chief executives, Goldman has sailed sublimely on. Which somehow works in Goldman’s favour. If there are Stein-like shenanigans going on at Goldman, you can bet there are at the other banks. Goldman are just doing it better. And if you accept that Goldman are doing that better, then why so hard to accept they’re just doing the usual trading, risk management, market analysis line of work better as well?

Stein’s allegations aside, we have this week had two alternative explanations for this disparity.

John Plender in the FT argues that the culture of partnership has survived Goldman’s move to a listed company with the accompanying emphasis on mutual surveillance in the common interest. Risk management at Goldman is a collective game - and the status, prestige and pay ascribed to people working in control functions is on a par with those running businesses. Plus Goldman’s board is heavier in banking and risk expertise than some of its rivals, with an executive core. Plender thinks that the bank’s governance played a role in its plain subprime sailing.

The other explanation was offered by the Jeremy Palmer, UBS’s EMEA investment banking chief executive, when put on the spot by the Treasury select committee. Why the committee of MPs asked did they lose money on the back of subprime when Goldman cleaned up?

The response:

Different decisions were taken at different times in different organisations which led to different outcomes.

http://ftalphaville.ft.com/blog/2007/12/05/9403/the-goldman-affair-and-why-they-made-money/

That´s why I do not have to visit theatre ! Wall Street is hilarious in its very own way....

 

Different outcomes? Sure, one department earned 600-million, another department earned 550-million, another different department earned 675 million.......different outcomes, each highly profitable!