Monday, October 22, 2012

We Get to Walk Away: The Tale of Two Gregs

We get to walk away: The tale of two Gregs

Later today, Grand Central Publishing will release the book “Why I Left Goldman Sachs” by Greg Smith, a mid-level Goldman Sachs Trader.  Readers of the New York Times may remember Mr. Smith’s op-ed column this past March[1], and television viewers may have seen Mr. Smith on 60 Minutes[2] last night.  Mr. Smith abruptly resigned from Goldman at age 32 and launched an attack on his former employer.    I’m don’t think you need to read Mr. Smith’s book.  His thesis was captured in the op-ed piece: Goldman Sachs has an evil culture that exploits its clients.  Obviously, Goldman Sachs vehemently denies this assertion and claims that the client’s interest always comes first.  To prove their respective perspectives, Goldman Sachs will trot out stories of virtuous deeds by their employees, and Mr. Smith will recount stories of traders referring to clients as “Muppets.” 

Consultants know more (1995)

As I’ve previously asserted, I don’t think the money management or the investment banking business is particularly good or evil, and therein lies the danger to our economy and society.   Without intending to, Lloyd Blankfein, the chairman of Goldman Sachs, summed up the danger when he asserted, “Bankers are doing God’s work.[3]”  I think the subtitle to my blog captures my deep concern, “In their eagerness to be rich some have wandered away from the faith and pierced themselves with many pains.” 1 Timothy 6:6-10

Greg Coffey recently resigned from Moore Capital, a large complex of hedge funds.  Mr. Coffey, known in the industry as the “Wizard of Oz,” produced an enviable track record for about 5 or 6 years trading emerging market securities.  He is also famous for giving up $240 million in bonuses and stock at GLG, another hedge fund, in order to join Moore Capital in late 2008.  Moore Capital offered him the chance to run his own hedge fund.  Mr. Coffey has retired at age 42 with a net worth estimated at over $400 million.  He failed to achieve spectacular returns for his investors, so he decided it was time to go home.  Mr. Coffey is, undoubtedly, a brilliant guy.  However, his investment performance and wealth have more to do with his having fished in the emerging market pond at the right time rather than his skill.

These two stories and my story share a deep unfairness built into Wall Street and money management.  We have the option of walking away.   Very often we call it retirement, but that doesn’t capture our action.  Having gotten our bonuses and extracted our fees, we have the luxury of saying “enough”.  I have respect for Mr. Smith’s decision to take on Goldman Sachs, because if his book threatens the bank, they are going to try to destroy his reputation.  I also laud Mr. Coffey for recognizing that he wasn’t generating returns commensurate with his fees and income.   However, it is fairly easy to be “principled” when you have a great deal of money. 

The average worker, be they a coal miner or schoolteacher, doesn’t have the luxury of just walking away.   If their work conditions become intolerable or they’ve just had enough, there’s no nest egg or book contract waiting for them.


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