Tag: Goldman Sachs

Finance Perspectives Practices

Glass Pockets, Goldman Sachs, and the Imperative of Clarity

In 1909, as the federal government was first moving towards regulation of the financial industry, J.P. Morgan is said to have told friends, “The time is coming when all business will have to be done in glass pockets.”  Goldman Sachs is about to find that, for the financial world today, glass pockets are no longer good enough.

The SEC’s civil suit against Goldman charges that, through a partner company, the investment bankers packaged particularly troubled mortgages into collateralized debt obligations, the now notorious CDOs.  After Goldman sold the allegedly designed-to-fail instruments, the partner shorted them.  Goldman collected fees for assembling and marketing the package (later offset, the firm contends, by larger losses).  The partner reportedly netted a billion dollars on its short positions.

The Wall Street Journal front page story characterized the SEC’s charges as the biggest Wall Street-Washington confrontation since the Michael Milken-Drexel case at the end of the 1980s.  The Journal might have added that Milken’s was the most prominent of a larger package of investigations targeting the investment community.  Despite a parade of so-called perp-walks, when financiers were led into custody as cameras clicked, almost none of those actions produced convictions.  The Milken case led to a fine and prison time but remains controversial to this day.  Many, myself included, believe justice was miscarried.

The public perception point here is that major financial players face a formidable communications obstacle when they become the targets of such sweeping legal actions. Most attorneys — both prosecutors and their own defense attorneys — and journalists don’t actually understand what investment bankers and securities traders do.  The complexity of modern finance bewilders them.  And they are predisposed to assume that complexity equals opacity and opacity equals fraud of one stripe or another.

As I write, the weekend after the SEC’s charges hit the papers, I am not offering a judgment on the  case against Goldman, though the purchasers of the CDO were among the most experienced and sophisticated players in the financial world.  If any buyers were capable of being intelligently beware, it was they.  But I am saying that Goldman must learn to explain its business with unprecedented clarity, otherwise, the legal, political, and journalistic worlds will judge the company guilty and exact huge penalties long before any trial.

Morgan’s term “glass pockets” suggested passive transparency.  Pull back the fabric; let in the light.  Goldman will need actively to project the light outward, making the complex both simple and comprehensible.  For an institution unaccustomed to talking to non-experts, the task is sure to prove formidable.

Finance Practices

Goldman’s Less-than-helpful Apology

In a speech Tuesday night, Goldman Sachs CEO Lloyd Blankfein reportedly apologized for his company’s role in the financial markets crisis, saying, “We participated in things that were clearly wrong and have reason to regret.”

Apologies are always tricky business for people or organizations under siege in the media. Sometimes they can be helpful. When an individual or company is clearly at fault for something, a quick apology, full explanation of what went wrong and why, and commitment to correcting the error can stanch public disapproval. Read

Finance Perspectives Practices Public Affairs

Goldman Sachs and the Perils of Personality

Does Goldman Sachs have a God problem? A God complex? An ungodly headache?

Goldman, once a venerable institution known for keeping close counsel, is now a lightning rod for populist criticism of the financial sector. And its latest public relations efforts don’t seem to be helping.

The bank’s very success – turning a profit in excess of $3 billion last quarter – is exacerbating the problem. Americans are in no mood to celebrate Wall Street success. With deepening bonus pools and bulked up compensation packages, Goldman isn’t winning any friends. Read