Guest Post: The Vampire Squid’s Problems

Tyler Durden's picture

Submitted by Azizonomics

The Vampire Squid’s Problems

Greg Smith, a now former Goldman Sachs derivatives executive slams his former employer in the NYT:

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.


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.


What are three quick ways to become a leader?


a) 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) 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.

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.


It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.


I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist.

Smith’s sentiments are appreciated, but actually he is wrong about a fundamental point, at least in today’s business environment. Goldman doesn’t have to give a damn about its clients because the vampire squid has found a much more lucrative way of insuring their bottom line: government largesse.

Let’s be clear: the bailout of AIG was not a bailout of AIG. It was a bailout of Goldman Sachs, to whom AIG were a counter-party. AIG’s failure would have meant Goldman’s balance sheet — already stuffed with derivatives dynamite — blew up. Goldman — along with a whole slew of other firms who created and invested in these dynamite products — would have been bankrupt.

And so the real problem is not Goldman’s rapaciousness. It’s the fact that systemic rapacity is being subsidised and protected by the government. Malpractice and malinvestment — such as the current global derivatives mesh which spreads risk around balance sheets like a pandemic — will in nature always eventually be punished by failure. That’s precisely what we saw in 2008, and that’s precisely what governments around the world crystallised and condoned through their bailout programs. Goldman have no incentive to change their business practices under the present conditions, and they won’t.

What’s the point of running a good business when you can run a rapacious and badly-run one and continue to thrive on government welfare? Bailouts destroy the market mechanism, and allow immoral and stupid firms (and systems) to prosper at the expense of better-run ones.

I wish Smith had the moral courage to approach the real problem — the arrogant and deluded central planners who allow the vampire squid to thrive and prosper.

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Bam_Man's picture

Den of Thieves.

WonderDawg's picture

And the Sheriff is on their payroll.

nope-1004's picture

And who funds gov't largesse?  That's right, the taxpayer.

So Goldman is so incapable of operating in a free market environment that to be profitable they have to suck the taxpayer tit - Blankfein's image problem notwithstanding.


Bartanist's picture

The government does not ask the taxpayer to pay for their largess nor do they ask the public's permission.

FEDERAL government spending and tax income are completely unrelated. The US government guarantees the elitist income and the debt slavery of the government to the banks in exchange for preventing the system collapse.

As long as there is a 100% fiat system, there is no limit to the amount of money the government must and will create out of debt to banks who unconstitutionally counterfeit our money.

JailBank's picture

Should not be given access to cheap FED money and should be brought up on charges of fraud.

spiral_eyes's picture

No more bailouts of anyone except people who don't have the money to eat.

Stax Edwards's picture

In our meetings, Bernanke defended the bank bailouts as necessary, but he expressed supreme distaste for them—“That must never happen again,” he cut in when I mentioned AIG, the insurance giant whose reckless behavior he has often criticized. Under the Federal Reserve Act, the Fed is authorized to make loans under “unusual and exigent circumstances” as long as the loans are “secured to the satisfaction of the Federal Reserve banks,” meaning, as long as the Fed does not expect to suffer any losses. A fair argument can be made that in the depths of the crisis, some of the Fed’s emergency loans violated this dictum. The very solvency of institutions such as AIG and Bank of America was in doubt. But then, the solvency of a bank could itself depend on the willingness of the Fed to intervene. Brian Madigan, a former senior official at the Fed, made just that argument after the crisis, and also wrote that Bagehot’s principles “need to be interpreted and applied in the real world.” One senses that he was speaking for the chairman. With the financial system on the brink of collapse, bailouts were deemed to be the lesser of two evils.


Bernanke says that bailing out AIG Goldman was a one time thing. Not like the FED can leave Goldman hanging now can they?

Excerpt from pretty good article about the Bernanke at The Atlantic:

kridkrid's picture

Nope.  This is the difference between a problem and a predicament.  We've created a predicament for which there is no solution.

LFMayor's picture

Fire purifies everything.

LongSoupLine's picture

yep, it reads like a bad Stephen Segal movie...

Zero Govt's picture

The Solution is.... wait for it...

Stop Paying Your Taxes (don't feed the Govt/corporate crooks)

Zero Tax = Zero Govt = Zero Goldman Sucking

simple boys, try it sometime

The Paucity of Hope's picture

Were ther good Stephen Segal movies?

brooklynlou's picture

So Goldman is no longer doing 'God's Work' but working instead for 'In God we Trust'?

VulpisVulpis's picture

I think I speak for everyone when I say "Ron Paul, Gold and Silver, F the Fed, Restore the Law ... Bitchez"

Zero Govt's picture

rather than whistling in a hurricane trying to be heard try not paying your taxes

don't feed the vermin

Tsar Pointless's picture

It's called "fascism". Or "corporatism".

Pick your favorite.

Shizzmoney's picture

How about "Corporate Fascism"?

I mention that we are living in Quasi-Fascism all the time, and epople blast me.  "We aren't living in 1930s Franco Spain, Nazi Germany, etc!".  No, we are not - they engaged in "Nationalist Fascism" the end, it was more about a crazy elite thinking b/c they were German, Spanish, etc. they had the right to pillage.

In "Corporate Fascism", the finanical and corporate "elite", it's all for the cream.  By the cream, for the cream, and nothing BUT the cream (dollar, dollar, bill.....ya'll). 

Pillage and make as much as you can.  Buy whatever politican you can.  And destroy those, either subversively, or by buying off cops/judges/lawyers, to eliminate your competition by law making, and opposition, by force.  And those who pillage the little people, like MF Global and Corzine?  Let them walk free.  We don't want to hurt our (sucker) investor "confidence". 

I know of a woman I work with that got audited by the IRS.  They took all of her money out of her account, around $4K, a day before she went on vacation to Florida.  When challenging the IRS, they said it usually takes 45-60 days to complete an audit, and that according to her, the IRS guy said to her, "Remember, Uncle Sam is ALWAYS right".

We the People, By the People, for the People.

What a crock of shit.

lotsoffun's picture

it's slightly different i think - and i call it consumerism - the fascism of having to consume, and if you don't consume, you are a loser, or ultimately worse.  it's biggest proponent is 'mis-info-tainment'.


NotApplicable's picture


It's official, Bernanke is a tiwit!

Think he'll follow Tyler?

In other news, "poop is coming out." Literally.



battlestargalactica's picture

They got 99 problems but ethical constraints aint one...

dvsteenk's picture

I'm surprised also that they didn't have any perfect quarters anymore

espirit's picture

Government sponsored moneylaunderers.

Even the govt doesn't expect them to be honest, should you?

jayman21's picture

As long as Ron Paul poles at 10%, I think we have our answer about the good o' USA and it citizens.  10% critical thinking folks and on the rise.  The rest....stay tuned.  The middle class was stolen from, but it continues to sleep.  Who is at fault?  GS? the gov't?  Sorry to say, but if you use history as a guide, the sheep will always be running in a herd without a clue.  It is not easy to watch as I think most here on ZH have some sense of community.  Back to March Maddness and Spring Training.

The Fonz...before shark jump's picture

Instead of bread and circuses..most are doped up on cheap credit and reality tv to effectively embrace critical thinking.....

AlaricBalth's picture

Don't forget the Zoloft with an Abilify chaser.

11% of all Americans have been convinced by the medical profession that they need to be chemically lobotomized.

spiral_eyes's picture

or prozac for that chemical castration.

victor82's picture

Ron Paul still polls at 10% because most folks still believe that the politicians will figure this thing out. That's how out of touch most voters are. 

This has been common throughout most of human history. The American People were willing to tolerate chattel slavery until the South fired on the flag at Fort Sumter and struck an emotional tribal chord in most Northerners. From then on, the issue of slavery became secondary to winning the war and fighting for honor. 

When insolvency hits the U.S. like a hurricane, suddenly people will gravitate to Ron Paul like bees to flowering plants. 

For now, most people, concious only of their families and their immediate world around them, ignore the larger crisis. That plays into the hands of the Looter Class, but eventually their circus will come to an end. 

hawks5999's picture

I think "will he blend" will be answered first.

asteroids's picture

The timing of yesterday's rushed FED release, JPM's declaraion of independence, and today's GS story is facinating. I think it's "ALL BETS ARE OFF" between the bankers and Obama/FED.  This could get real interesting real fast. Beware the Ides of March.

AlaricBalth's picture


Profits go to shareholders and the bonus pool.

Losses on the other hand, are shared among the taxpayers.

Haven't you received the memo?

AlaricBalth's picture

Double post. My bad.


VanceEva1's picture

my classmate's sister makes $82 hourly on the internet. She has been out of work for 10 months but last month her income was $17192 just working on the internet for a few hours. Read more on this site ....

spiral_eyes's picture

wow, i guess she's working for goldman sachs, am i right?

Squid Vicious's picture

Goldman doesn't really have clients, just rubes to front-run and offload soon-to-be unprofitable positions on ...

steelhead23's picture

I find myself in a churning sea of capitalists - true believers who spout words like "free market" as if they actually meant something.  The only true free markets in my experience are black markets and flea markets.  So, I have to ask, what the hell are you talking about?  Firstly, for there to be a free market, buyers must know the value of the currency of exchange (which is being modified daily) and estimate the future cost of inputs to his product; and sellers must know everything of importance to a product's utility at the time of purchase.  Look at Mr. Smith's letter above.  GS sees its clients as "muppets" - to be manipulated.  That is GS knows things about the products it is selling to clients IT DOES NOT WISH THOSE CLIENTS TO KNOW.  Further, GS pays ratings agencies to provide high ratings for its products (never low ratings), hoping that its ignorant clients would be persuaded by these "independent" assessors.  Seriously dudes, do I have to go on.  You capitalists should read Samuel Beckett's play Waiting for Godot, because you are the players and you will be disappointed.  Godot never comes - and there is no such thing as a free market.

In my view, it is this ideological quest for that which does not exist (but boy, would it be great if it did!) that resulted in an oversight system (Greenspan's model) of getting out of the way so the free market miracle could work.  Guess what?  The wolves ate the sheep (and got indigestion).  Your cries for a free market will only ensure that it happens again.  While I support an individual's right to purchase almost anything he/she wants and the right of producers to meet that demand, I want markets managed (manipulated even) in a manner to provide a net public benefit, defined as demcratically as possible.

The real problem as I see it is that tyrannical rule has created a financial market that favors the banksters over the investing public.  Obama bailed out AIG because its collapse would have decimated Wall Street.  Costs into the trillions of dollars have been incurred to keep the banksters rolling in dough.  What if, instead of enriching the banksters Bernanke and Obama had offered to share (50/50) the cost of principal write-downs on existing loans - that is, help the homeowners first, the banks second?  If government isn't protecting the public interest and individual rights, what the hell good is it anyway?

gasmiinder's picture

The real problem as I see it is that tyrannical rule has created a financial market that favors the banksters over the investing public.  Obama bailed out AIG because its collapse would have decimated Wall Street.  Costs into the trillions of dollars have been incurred to keep the banksters rolling in dough.  What if, instead of enriching the banksters Bernanke and Obama had offered to share (50/50) the cost of principal write-downs on existing loans - that is, help the homeowners first, the banks second.  If government isn't protecting the public interest and individual rights, what the hell good is it anyway?


But that's the problem with the centralization of power - the powerful will ALWAYS corrupt it.  The solution is to return power to the states as the constitution provided and leave the feds to only provide criminal enforcement.  Corruption will still exist but the powerful have to buy 50 legislatures instead of one.  That will never happen of course - because the world is full of idiots who think a government will, (or even can) ever exist that puts the public interest and individual rights ahead of the interests of the powerful.  And are happy to vote on the basis of "who pays for my contraceptives".........................

HAhyperion's picture

Economic inequality, the militarized state and dubious imprisonment of both citizens and immigrants, the disenfranchisement of voting rights, the immunity of bankers, politicans, institutions of "higher" learning (Penn State) and worse yet the Church. (Catholic child abuse). 

The fall of both the Greek democracy (doomed from the beginning bc it was an oligarachy) and Roman Empire (their big mistake moving from a republic to an autocratic monarchy) was rooted in the loss or decay of civic virtue.

Aristotle's concept of citizenship was one not of political right but duties.  Cicero and Plutarch emphasized the same- as well as Confucious.

All great thinkers from Hobbes to Rousseau (see his Social Contract)  to Lincoln knew that a legitimate sovereignty flows from the people.  The reasonable and legitimate needs of the people must be met or the state loses credibility.  The Mayan knew that all inauthentic institutions eventually collapse.  Abraham Lincoln's succinct description of democracy: "No Slaves, No Masters."

But somewhere along the way the concept always gets twisted.  Religion even changed where the focus became on individual behaviour vs. the "communion" of people.

We are witnessing a global voiding of all social contracts other than those of the select plutocrats.  It has happened before and as Rousseau cautioned and I am paraphrasing, "those that think they are masters are more enslaved than those they enslave." 

Prepare for civil unrest, revolution, violence.  

Or GOD Bless the Child and hope they envision a new way, a new world order, that starts with relationship: to ourselves, our fellow man, the earth and all living things.  Read the blogs of the young: many see themselves as global citizens first and foremost rather than Americans, Brits, or Chinese. Or the new Fascism of adults identified and labled by proclaiming their corporate alligence first.  

Man has basically "progressed" by taking three steps forward and two back because he has continued to rely on the early day strategy when he emerged from the cave: my club is bigger than yours, I'll take the prey or prize.  

It is time for a paradigm shift at the most basic/fundamental level.  

All the best to You

HAhyperion's picture

Read the Forbes piece what a prick:  to save you the time here is my post to their ridiculous article  Attack or kill the messenger.  You miss the point.  Beyond Goldman, as a country, we have lost our way: we no longer have any ethics collectively or individually in respect to relating to each other as human beings.  Stewardship is a word infrequently heard today.  What are we teaching our children? And moreover, besides the toxic spew spread throughout global finance what about the egregious disregard for our earth: Garbage  in garbage out ultimately unsustainable. One could say the same about  food supply, GMO, antibiotics/hormones, FrankinFish.  The author also lacks an incredible lack of knowledge re: Goldman's client base as if it's 1M Aunt Millie's calling into their broker.  Its the FED and other large financial organizations that keep the shell game, the three card monte or the more apt description the hot potato moving back and forth.    Before the world rushed into global finance or interwoven global manufacturing and supply chains it needed to start with building a foundation: agreement on a core set of values (food/water, shelter, energy, education, health).  From there, the next tier: uniform accounting standards, exchange trading rules, wage and work rules, and at least some attempt at normalized taxing, property/human rights law and pollution rules.   But the beholding politicians worldwide created this house of cards with its cracked and leaking foundation so the corporate and financial titans could exploit cheap labor, dump toxins into the air, water, soil where lax environment laws exists, leverage with ratios reaching the 30,000 foot level, etc.   Boy, $550M and the other nominal pocket change the other banks have "settled" upon vs front door TARP $700B, back door FED $7.7T.  With no orderly deleverage requirements or broader distribution to the commercial/consumer credit markets.   NO back to the non regulated, non exchanged based swaps/CDO market for more highly leveraged wild speculation. The already weak Dodd Frank, Volcker rule to be extended, delayed and further weakened.   Yes, the FED and other central banks, still sticking it to the taxpayers around the world right through the rear end.  If that was not bad enough, there goes Japan, there goes the EU, etc the house comes crashing down on our heads as well.   Then, one someone dares speak his mind, and at least in civility, grant him some benefit of the doubt, that there is some truth there, let's all gallantly go charging to the rescue of the poor misunderstood bankers.   As my 13 year old nephew would say REALLY?

slackrabbit's picture

exectly, the place where the big banks end and government begins no longer exists

putaipan's picture

yup. tom brokaw didn't mention aig at all.

putaipan's picture

although there was a creepy reference to the war of 1812 in the second story.

dolph9's picture

The Jew financiers are losing and on the run.  The tell was when they converted to a bank holding company to receive your money.

Carmagnole's picture

Isn't this new corporate mentality brought on by a top-down culture shift exactly similar to what happened to Arthur Andersen before it went under along with Enron?

bankruptcylawyer's picture

do you really need to celebrate a douchebag making money at goldman who is complaining about front running when goldman's real sin is not front running but behind the scenes running the government by way of controlling the fed?



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