A Quick Note re that Goldman Op-Ed

March 15th, 2012 at 9:16 pm

In the update to this post from yesterday, I linked to the much-read oped by Greg Smith, a former Goldman Sachs exec director.   Smith’s resignation letter is a scathing description of the devolution of GS’s culture from serving clients to enriching the firm itself.  I can’t speak to facts of the case but the piece resonated and was somewhat corroborated by Paul Volcker, a venerable veteran of financial markets (though Volcker’s point was about more than GS—as with his eponymous rule, he stressed that when banks trade their own books, conflicts of the type Smith wrote about are endemic).

The point I wanted to make here is about the research economists group at Goldman.  These are the folks who publish daily newsletters for clients not about trades in financial markets, but about the real economy, GDP, employment, prices, trade, fiscal and monetary policy, etc.

You’ve seen me cite their work many times on these pages and I will continue to do so.  They provide top-notch analysis, clearly explained and presented, on the most important topical issues.  I’m not a client of GS, but I’d say that this team serves their clients well.

That doesn’t contradict Smith, btw.  It’s just not throwing out the baby with the bathwater.

 

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3 comments in reply to "A Quick Note re that Goldman Op-Ed"

  1. E Henry Schoenberger says:

    Jared, I have read your pieces in the past and this is my first comment.

    First, from more than 4 decades of experienced in the securities business and as the former owner of an NASD Member Firm specializing only in real estate private placements, and as a life long activist preaching the need to find some self-interest in the common good – and as the author of 2 books, the first one in 1990 warning about the turn to financial investments in lieu of real – and my newest – How We Got Swindled by Wall Street Godfathers, Greed & Financial Darwinism ~ The 30-Year War Against the American Dream, with a foreword from David Satterfield, the former business editor of the Miami Herald and 2 time Pulitzer Prize-winner — I cannot agree with your assessment of Goldman. Keep in mind that often analysts are paid to provide 3rd part influence to sell whatever Goldman or Merrill or Lehman wants to sell!

    If Goldman’s “research economists” had critical integrity, assuming they had the brains to know better, they would have blown the whistle on all the swap backed worse than subprime debt that created the 2nd worst economy since 1776. Debt that was so bad it required collaterization to sell, and the collateral would not have been acceptable to any bank in the world -n matter how dumb or greedy. Further they would have chronicled the return of robber baron economics based on laissez faire and the maximization profit theory from the era of Social Darwinism that caused the Great Depression and this one.

    So i wrote my new book to inform Americans who badly need to be better informed. And i am commenting to you out of respect but out of Socratic disagreement. http://www.howwegotswindled.com


    • Jared Bernstein says:

      Thanks for the thoughtful response. To be clear, I was explicitly not offering an “assessment of Goldman.” At least, not a favorable one. In both that post and an earlier one I stressed that Smith’s oped resonated.

      But your second point is interesting. As you know, I’m sure, researchers in these firms exist to inform the firm and clients about what’s going on in the economy–what’s the economic climate in the “real economy” within which the firms’ and clients’ trades takes place. If they recognize a housing bubble fed by terrible underwriting, bad ratings, “innovative” securitization, then obviously they should say something, even if it’s their firm in the forefront of those activities. But I don’t think they saw it. Their bad, yes. But sadly, that puts them in the majority–right up there with Gspan and Big Ben.


    • Michael says:

      Why would the blow the whistle instead of make lots of money? Are you under the impression that America rewards service to its common good?


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