Thursday, December 3, 2009

So What Is Goldman Sachs Really All About?

Bethany McLean at Vanity Fair provides great insight into what the firm is all about. It's must reading.

She doesn't linger over Goldman's entanglements with the government, but it is all there. But more than that, there is also a lot about the hustle of Goldman employees. Take out their sleazy entanglements with government and Goldman hustle could be a model for any firm, hell, any person.

A few side points. McLean mentions Warren Buffett's investment in Goldman, which becomes curiouser and curiouser in my mind, since it sure looks to me that while former Goldmanite Hany Paulson was the Secretary of the Treasury, he put the kabash on Buffett investing in Lehman Brothers, and then just a few weeks later Buffett ends up investing in Goldman. Very interesting.

McLean also writes:
As a lot of people know now, Wall Street firms are fragile entities, needing the market to finance themselves. Because it is cheaper for them to borrow short-term money than to borrow long-term money, during the bubble years they all, to some degree, began to rely on short-term money—which they’d use to buy assets such as real estate or entire companies that couldn’t be sold immediately
There is no reason a Wall Street firm has to be fragile. There is absolutely no reason a Wall Street firm can't match up the length of their assets and liabilities. The firms that didn't were simply riding on the coattails of the positive sloped yield curve created by the Federal Reserve, and will get crushed every time the Fed tightens and the yield curve turns negative. (Or they will get bailed out with taxpayer money as in the case of Goldman)

Here's McClean's article.


  1. Wenzel,

    There is no reason a Wall Street firm has to be fragile. There is absolutely no reason a Wall Street firm can't match up the length of their assets and liabilities.

    Thanks, I tried to make a similar point in Redefining the Liquidity-Solvency Debate

    I just read the McLean article today after a co-worker sent it to me. It was a good read, she's one of the few finance journalists who seems to understand greater than half of what she's talking about (NOT saying she understands only 51%), maybe in part because she's been there.

    That being said, there was a whole lot of insistence, by the people she quoted as well as by her own authorial-opinion, that GS is great, smart, does a good job, but it seemed light on actual observations of the mechanics by which GS has done a good job. It reminds me of staring at a big "car factory" and seeing perfect, shiny red Ferraris getting pumped out the end of it and standing back and saying, "Well, say what you want, they make a damn good Ferrari here, like no one else can!" and meanwhile, behind the factory you can't see it but they're driving the Ferraris into a door leading into the "factory", having been recently stolen off a number of nearby Ferrari-dealer lots.

    Also, as you pointed out, considering how integral to their survival their various govt-connections and bailouts were, McLean seems to spend little time really delving into it. If you consider the "setting" of this article and imagine a visual, it mostly all takes place on Wall St., not K Street (short divergence to Omaha where we see WarB at a DQ with the kiddos). It's like a scene pulled from Wall Street 2 rather than a scene pulled from a Cold War-era Situation Room national emergency flick.

    I don't know if that was intentional or not.

    Wish there weren't so many anonymous sources, either. It seems like it's become perfectly acceptable, post Watergate, for journalists to simply never cite their sources.

  2. Pure propaganda...
    Half truths and spin..
    surprised you liked it..