Watch UNC vs. Kansas on Sunday, March 25, 2012, at 5:05 PM here online!
UNC NO. 1? (!)
It was almost a too-exciting game as seen from the third bar stool of the Four Corners bar on Franklin Street. Thanks to UNC fans Alyssa and her fiance Tyler for keeping me sane!
Tune in to the game Sunday against Kansas. (Kansas! Roy. Say it ain't so!)
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Wish this signified a change in course from the seemingly present one of our ship of state sailing right over the edge on the wave of new unregulated financial instruments (of death).
Former Goldman Sachs executive Greg Smith takes a rare look at modern-day investment banking. His description of the profit-first culture should prompt investigation into bank practices and serious questioning by clients – from individuals to pension funds to universities – as to their advisors’ ethics and priorities.
Smith’s . . . New York Times op-ed, written as he left his employer of 12 years, describes the firm’s environment as “as toxic and destructive as he’s ever seen it”. It rewards dumping unprofitable Goldman-owned investments and getting clients to trade what brings in the most profit for the bank. It often ignores interests of clients, referred to by managing directors as “Muppets”. “The decline in the firm’s moral fiber represents the single most serious threat to its long term survival,” he writes. If character is destiny, banks’ path ahead will be littered with obstacles more deadly than exploded swaps.
Banks relentless search for profits has racked up immense “collateral damage”. Investment banks have injured individuals and institutions of every stripe. Institutions include the country Greece whose books Goldman cooked; Jefferson County, Alabama, and many European cities devastated by risky derivatives; colleges like the University of Virginia and Harvard who have held cut-rate sales on private equity; and pension funds and others who sued for fraudulent trades.
Hurt individuals include veterans overcharged by JP Morgan Chase, Occupy Wall Street protestors unfairly arrested after JP Morgan’s huge donation to local police; millions abused in foreclosure and mortgage scams; and hundreds of millions globally impoverished by the crisis. Bank profits and bonuses hit all time highs, even after inflicting this widespread harm.
Of course, the culture of predation extends to institutional and individual investors. Yet few bank insiders and private wealth clients have shared their experiences. This critical relationship at the heart of the risky, dysfunctional financial system – where clients give money and banks often invest it, as they like – must be examined.
Our family’s experience provides a glimpse into (a) sector once touted as a replacement to manufacturing, one whose “innovative products” represented a major American competitive advantage.
Since several years before the crash, our family has worked with Wall Street banks that helped invest foundation money and assisted in other capacities. Sometimes the relationships have been positive and responsive. But too often dealings have reflected banks’ priority on their own profitability. The culture and practices described by Smith viewed from the outside look no better.
In the mid 2000’s when we were investing, skepticism over mutual funds led many clients to consider allocating equities to index-based, low-fee exchange traded funds. Investment advice was becoming commoditized. Thus bankers developed model portfolios that allocated 15 to 70 percent to “alternative” investments – like hedge funds, private equity, and real estate – saying it would dampen volatility and boost gains. Bank(s) often earned 3 to 7 times more than on ETFs (now clearly just part of their profits), and only later did we learn that these products destabilized economies and hid predatory practices.
But at the time “absolute returns” – no negative years – and mid-teen performance on private equity were said to be well worth the fees and lack of liquidity. Banks then exaggerated investor experience to make them appear “sophisticated”, i.e., aware of the risks since shown to be so opaque they have devastated economies.
Enter 2008. A reported 15 percent of hedge funds close and banks quickly slash the leveraged buyout allocation to near zero (although sales, except at a steep discount, were near impossible for owners). Yet less than two years later banks again marketed portfolios with high alternative allocations, and placed investors in stock and bond products of even greater risk.
JP Morgan recently rocketed into the top 10 stock and bond fund managers, but their new products often use complex derivatives profitable for them and potentially destructive for others.
With us, banks have pushed investments through a dynamic of belittling; evasion and distraction that make celebrity divorces look like models of healthy communication. Pre-crash, one bank evaded repeated questions on increased correlation of assets that would have saved us – and lost them – significant money.
Repeatedly, quarterly reports were sent later than promised and requested information excluded. Banks have changed benchmarks, and highlighted positive returns while burying information on poorly performing assets.
Investments put into our accounts on a discretionary basis have rapidly tanked. Banks avoided answered questions when the responses could highlight product risk, and have provided misleading risks information. Despite being told not to pitch proprietary products and to focus on ETFs, financial institutions repeatedly recommended bank-owned hedge and other funds and structured notes.
Recommendations were rarely provided in the requested format outlining charges and non-bank-owned, low-fee options. They have steered us from gold, foreign currencies and US Treasury Inflation Protected bonds that earn them little, though these investments would have provided high returns and true diversification. The result? We’ve stayed in risky products longer, racking up bank fees while depressing our returns. Our family and many others are still very fortunate and wholly undeserving of pity. But practices causing almost universal harm must be fixed.
As a start, banks should be required to disclose their company-wide profit on the sale and management of investments. Forward-looking risk/return analysis, concise and comprehensive reporting, and a clear explanation of conflicts of interests should also be mandated. But insiders and clients must publicly discuss their experiences also, and the media and government investigate to help evolve this dysfunctional system. Bank profitability too often comes at a heavy costs to humanity. Banks don’t do business with puppet characters but with people deserving of complete information and unbiased advice.
Robert Scheer has a more negative view of the banksters' RICO finessing.
By the time you read this, the PR hacks of Goldman Sachs will be vigorously pressing their efforts to destroy the reputation of whistle-blower Greg Smith, a former Goldman executive director whose exposé in . . . New York Times Op-Ed page was so devastating that the 143-year-old firm might actually, finally, be held accountable.
Smith, a wunderkind who spent the 12 years after he graduated from Stanford University rising through the ranks at Goldman, has revealed the firm’s culture to be so fundamentally venal that were financial industry shenanigans not generally exempt from effective legal regulation, Goldman’s executives could have been rounded up Wednesday morning on organized-crime charges.
The law that exempted what would have been illegal trading in the murky derivatives that the Smith article denounced was the Commodity Futures Modernization Act, enthusiastically signed by Bill Clinton in the waning months of his administration. The legislation shielded from any regulatory law the very activities that led to the financial meltdown from which Americans are still reeling.
Back in the Clinton era, it fell to the president’s last press secretary, Jake Siewert, to justify the freeing of Wall Street investment houses to do their worst, and in one of those delicious ironies, Siewert was appointed as a managing director and the global head of corporate communications for Goldman Sachs the day before the devastating Smith exposé broke.
Who better to hastily concoct a strategy of explaining away Goldman’s deceit in the sale of those derivatives? Predictably there was the quickly leaked memo by Goldman CEO Lloyd Blankfein shooting Smith, the previously highly valued young messenger, as a “disgruntled” employee for daring to describe the culture within Goldman “as toxic and destructive as I have ever seen it.”
Smith’s charge about Goldman “routinely ripping their clients off” resonated widely on the Internet because of prior exposures of suspect derivatives deals in which Goldman explicitly bet against the products it was selling. Slightly less than two years ago the Securities and Exchange Commission filed fraud charges against Goldman that resulted in a $550 million fine over such double-dealing.
But what is so damning in (the) article is Smith’s insistence that the culture of Goldman has only gotten worse since then: “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.”
In addition to heading Goldman’s equity derivatives trading in Europe, the Middle East and Africa, Smith was involved in recruiting new talent for the company. It was his supervision over recruits being exposed to the increasingly corrupt Goldman culture — amid routine reference to clients as “muppets” and chortling about “ripping eyeballs out” — that finally turned him off.
At the heart of the rot were those derivatives, the collateralized debt obligations (CDO) and credit default swaps (CDS) that were made legal by the legislation Clinton signed and Siewert defended.
In his piece, Smith referred to the selling of those designed-to-be-toxic products as the essential avenue of Goldman’s greed, saying you “find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.”
Contrast Smith, who announced his resignation from Goldman in the Op-Ed article, and Siewert, who has just joined up with the greed merchants after working in the administration that made that greed legal.
Clearly, people like Siewert, comfortable in the Washington-Wall Street axis, have no sense of shame. They know all too well what Goldman and the other financial swindlers have been up to, causing so much misery for tens of millions throughout the world.
After a stint with Alcoa in the private sector, Siewert returned to government as a top aide to President Barack Obama’s treasury secretary, Timothy Geithner, who worked in the Clinton Treasury Department before becoming head of the New York Fed.
Former Clinton Treasury Secretary and Goldman Sachs executive Robert Rubin recommended Geithner for that position. In his Fed job, Geithner choreographed the bailout of AIG, which compensated Goldman Sachs for its toxic derivatives.
Because Siewert is obviously without a moral compass, he can, as have so many in the elite from both parties, move easily without any hesitation through the platinum revolving door between Washington and Wall Street, becoming filthy rich in the process while betraying the public trust. Hail Greg Smith, and thank The New York Times, for his cri de coeur, a rare example that decency is not always for sale.
Remembering the very funny, grim, sometimes prescient but always current commentary and humor of Bill Hicks.
Do yourself a favor and watch these three short videos. You'll have real tears in your eyes, I'll bet.
I really miss him.
And he died of cancer 19 years ago.