Illiquid opaque products and a Dear John missal making waves:
TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
The author, Greg Smith, goes on to say:
What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
My goodness!
Those people at Goldman Sachs don't sound like they are very nice!
Dumping worthless products on customers. Seeking out wealthy customers for plucking. And, I learned some nasty new words:
Illiquid, opaque products
Goodness me! What is an illiquid, opaque product?
It sounds just as nasty as um:
Derivative
Dear me! Illiquid in business talk means:
The state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value. Illiquid assets also cannot be sold quickly because of a lack of ready and willing investors or speculators to purchase the asset. The lack of ready buyers also leads to larger discrepancies between the asking price (from the seller) and the bidding price (from a buyer) than would be found in an orderly market with daily trading activity.
I certainly wouldn't like to be saddled with a financial pile of crap that I couldn't unload.
And, as for opaque, here's an interesting abstract:
Using cross-country data on trading by international mutual funds, I find that firms with more opaque information environments, as captured by firm- and country-level measures of the availability of financial reporting information, experience more privately-informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced where country-level disclosure infrastructures are less developed, when competition for private information is restricted and for those investors for whom the incentives and opportunities to acquire private information are greatest. A difference-in-differences analysis of returns earned by institutions across opaque and transparent firms suggests these results are economically significant.
Restricted private information? Isn't that kind of like that other bad thing,
Insider Trading?
And another thing, writers for The Journal of Financial Economics say:
Moreover, opaque firms are more prone to stock price crashes
It doesn't seem to me that it's a good idea to invest in a company that's likely to crash.
Gosh, the Goldman Sachs traders sound so much like Bernie Madoff, looking for rich clients to pluck -- and Madoff is in jail for life isn't he?
Needless to say, a lot of traders are running a tad scared after the very public resignation and they are trying to make fun of its author, and even Lloyd C. Blankfein and Gary D. Cohn of Goldman Sachs have been obliged to write a public letter which opens:
By now, many of you have read the submission in today’s New York Times by a former employee of the firm. Needless to say, we were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.
And blah, blah, blah, with the same old tired excuses and the whiny claims to business nobility, "working hard in a difficult environment...", hah!
They should trying working in a coal mine. Or, try scrapping up conflict minerals in the hotness of the Democratic Republic of the Congo with a rifle prodding your backbone.