Jim Grant: “The Federal Reserve Is The Vampire Squid Of Vampire Squids”

Friday, May 4th, 2012

Munch’s “The Scream” may be all the rage today, but to Jim Grant, in his latest interview on Bloomberg TV, the record price paid for the painting is not so much a manifestation of modern art as one of modern currency: “This is the flight into things from paper” . Thus begins the latest polemic by the Grant’s Interest Rate Observer author whose topic is as so often happens, the Federal Reserve (for his latest definitive expostulation on why the Fed should be disbanded and why a gold standard should return, delivered from the heart of Liberty 33 itself, read here). The world in which we invest is a world of immense wall to wall manipulations by our friends in Washington. And people get off on Goldman Sachs because it has done this and this, it is pulling wires… The Federal Reserve is the giant squid of squids, it is the vampire squid of vampire squids.”

He continues: “They – the vampire squids - have manipulated virtually every single price and valuation in the capital markets. People ought to recognize when they invest that one of the unspoken risks is the risk that this hall of mirrors, this Barnum and Bailey world that the Fed has created for us is going to vanish one day because they will not be able to hold it any more… It’s not as if there is nothing to do in investing, but one must always keep in mind that the valuations that we see, that the prices that we watch flicker across the tape are prices that are fundamentally manipulated by these well-intended, dangerous people in Washington called the Federal Reserve“. And to think that 3 short years ago Grant would have been branded a loony, tin-foil hat wearing gold bug, while now it has become trendy for hedge fund managers to bash the Fed with impunity. It is all downhill from here.

Tags: All The Rage, Barnum And Bailey, Capital Markets, Federal Reserve, Giant Squid, Gold Bug, Gold Standard, Goldman Sachs, Hedge Fund Managers, Immense Wall, Impunity, Interest Rate Observer, Jim Grant, Manipulations, Modern Art, Squid, Tin Foil Hat, Valuations, Vampire Squid, Wall To Wall
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Greed is Indeed Good at Goldman?

Thursday, March 15th, 2012

Scandal and headlines seem to perpetually follow Goldman Sachs (GS), a firm that’s simply doing “God’s Work“.  On Wed. March 14, Goldman’s name once again burnt up the Internet, and social media.  This time it was from a resignation letter by one of its top executives published as an op-ed at the New York Times.

The op-ed entitled “Why I Am Leaving Goldman Sachs” blasting GS culture of greed was written by Gregg Smith, a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa, according to the Times.  The letter and its link has immediately gone insanely viral and trending worldwide.  That was probably one factor that sank GS stock by 3.5% on the day while the broader market was essentially flat (see chart below).

You can hardly blame the enthusiasm of the 99% around the globe.  After all, it’s been over two years since Matt Tabbi at Rolling Stone turned “Vampire Squid” and “Goldman Sachs” into synonyms.

Here are some of the most revealing tidbit Smith wrote

“It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.”

According to Smith, the three quickest ways to climbing the corporate ladder at Goldman:

1. Execute on Goldman’s “axes,” – Persuading your clients to invest in the stocks or other products that Goldman is trying to get rid of.
2. Hunt Elephants.” – Get your clients–some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman.
3. Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

Of course, Goldman immediately came out with a three-sentence rebuttal:

“In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.”

There are some people questioning the motive and the exact position level of Smith.  Goldman, reportedly,  tries to downplay Smith as just one of 12,000 company vice-presidents, a more junior rank, implying frustration could be Smith’s motive since he’s been at the firm a decade and is still a low man on the totem pole.

Regardless, Goldman’s own track record supports Smith’s statement.

Just less than two weeks ago, Delaware Chancery Court Judge Leo Strine citing “the disturbing nature of some of the behavior” of Goldman leading to the terms of pipeline operator Kinder Morgan Inc.’s $21.1 billion purchase of El Paso Corp.  Goldman Sachs’s biggest takeover deal last year.

The bottom line?  Total conflict of interest!

Bloomberg reports that Goldman stands to make $20 million in fee from El Paso, but GS also has a $4 billion stake in Kinder Morgan. Two of GS employees also sit on Kinder Morgan’s board, although both recused themselves from negotiations.

Judge Strine wrote,

“I cannot readily accept the notion that Goldman would not seek to maximize the value of its multibillion dollar investment in Kinder Morgan at the expense of El Paso, but, at the same time, be so keen on obtaining an investment banking fee in the tens of millions,”

And who can forget the SEC fraud suit in April 2010 against Goldman for unloading risky subprime mortgage packages to clients while betting against them the whole time?

So this Goldman Letter by Smith is simply stating the obvious of what’s been going on at Goldman as well as on Wall Street for years.  Will this lead to some much needed moral and ethical reform at Goldman and on Wall Street?  I certainly won’t hold my breath.

Tags: Axes, Climbing The Corporate Ladder, Derivatives, E Mail, Fundamental Truth, Goldman Sachs, Greed, Gregg Smith, Hunt Elephants, Letter Acronym, Muppets, New York Times, Rebuttal, Resignation Letter, Rolling Stone, Squid, Tabbi, Tidbit, Top Executives, Vampire Squid
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Greg Smith’s Parting Confession on Goldman’s “Toxic and Destructive” Culture

Wednesday, March 14th, 2012

Greg Smith’s confession, a now former executive director and head of the Goldman’s United States equity derivatives business in Europe, the Middle East and Africa.

Excerpts from the NYT:

Why I Am Leaving Goldman Sachs

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.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

…

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.

…

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. 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.

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.

Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people 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.

Tags: Belief, Confession, Conscience, Derivatives, Excerpts, Executive Director, Global Finance, Goldman Sachs, Greg Smith, History Books, Humility, Investment Banks, Matt Taibbi, Nyt, Pride, Skeptical Public, Squid, Stanford, Summer Intern, Teamwork, Trajectory, Vampire Squid
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Fortune 1986: Inside the Deal that Made Bill Gates $350M

Thursday, March 17th, 2011

by Trader Mark, Fund My Mutual Fund

If you have a historian bent to you, there is a pretty fascinating original article (from 86) about the IPO of Microsoft that is being reprinted on the Fortune website, to celebrate the 25 years it has been public.  When you read articles like this, or watch movies like the original Wall Street (1987) it is almost amusing how small the dollars are relative to what is tossed around today.   Just today we have an article on Bloomberg that Groupon – which was launched in 2008 and rebuffed a takeover by Google late last year at $6B, might be going IPO near a $25 BILLION valuation.

Anyhow here is the article for those interested – vampire squid included.  (click full screen for the easy read)

Inside the deal that made Bill Gates, age 30, $350,000,000

Copyright (c) Trader Mark, Fund My Mutual Fund

Tags: Bill Gates, Bloomberg, Fortune, Google, Historian, Ipo, Microsoft, Mutual Fund, Original Article, Squid, Takeover, Vampire Squid, Wall Street, Watch Movies
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