Goldman Sachs Analyst Quotes

In 2007 one of its biggest clients, Goldman Sachs, demanded that AIG put up billions of dollars more in collateral as required under its swaps contracts. AIG disclosed the existence of the collateral dispute in November. At the December conference, Charles Gates, a longtime insurance analyst for Credit Suisse, asked pointedly what it meant that “your assessment of certain super-senior credit default swaps and the related collateral . . . differs significantly from your counterparties.

And indeed, much of the evidence presented in this book so far would appear to confirm this. From the Boeing executives who built faulty planes, to the Goldman Sachs analysts who lied to their clients before being bailed out by the taxpayer, the capitalist class seems to provide the best evidence that society is made up of innately selfish individuals whose cooperative impulses extend, at best, to their immediate family and friends. But this view is highly one-sided. As we will see in this chapter, people are capable of amazing feats of ingenuity, compassion, and cooperation -even in a social order as brutal and competitive as our own. Capitalism, of course, rewards the opposite behavior: ruthlessness, competitiveness, and self-interest. No wonder these are the behaviors we see most prominently on display at the top of our society. And those at the top are precisely those who benefit from the belief that everyone is just like them. You don't have to look particularly hard to find the view of humanity as inherently selfish repeated by those in positions of authority. The managers at Lucas Aerospace certainly shared this view. And it is no coincidence that Golding was a schoolmaster -he was probably quite used to being disobeyed by his students, and likely saw this as an indication of man's inherent selfishness. But disobedience to authority is not an indication of selfishness; it's an assertion of an individual's autonomy. In fact, the willingness to disobey is precisely what separates genuinely civilized societies from barbarous ones. One only has to listen to the testimony at the Nuremberg trials to see what can happen when people unquestionably obey their superiors.

The ability to make rational decisions is limited, or bounded, by the extent of people’s information. To broaden employees’ understanding, a firm should promote a tradition of teamwork and interdependence and develop future leaders by rotating them among work assignments in different departments and geographic locations. In order to reduce structural secrecy, there may be short-term opportunity costs, but the long-term benefits are significant.12 Firms must think about long-term greed and what it means. Through actions and training, leaders must explain the pressures on short-term thinking and how the firm resolves the conflicts of short- and long-term goals. Potentially conflicting or confusing organizational goals, such as putting clients first while also having a duty to shareholders, require strong signals from leadership as to what is acceptable and unacceptable behavior. These nuances cannot be left to statements of principles; they must be modeled by leaders’ actions each day. Leaders must understand that external influences can shape the culture. For example, there are competitive, technological, and regulatory pressures. Responses to them can have unintended consequences, including drifting from principles. This can increase the probability of an organizational failure. An organization needs to understand to what extent models impact behavior, decisions made by business leaders, and organizational culture. For example, boards of directors of public companies should ask questions if earnings per share (EPS) estimates are too consistent with analysts’ estimates. They should ask whether the firm is managing to models or to what is in the best long-term interests of the firm. Leaders get too much credit and too much blame. Leaders need to uphold the firm’s shared values—and that is a key component to leadership.13 But too little emphasis is given to the organizational elements that shape behavior or provide an environment for leadership or change. An organization’s structure, incentives, and values last longer and have more impact than those of individual leaders. Usually when there is a change or loss or failure there is a tendency to blame one thing or one person, when typically there are complex organizational cultural reasons. It is the duty of leaders and board members to examine what is responsible, not who is responsible.

How big and important are proprietary trading and principal investing activities at Goldman? Glenn Schorr, a Nomura Securities equity research analyst covering Goldman stock, estimated that the Volcker Rule, which is intended to restrict proprietary trading and principal investing at investment banks, would impact 48 percent of Goldman’s total consolidated revenue. To put this into context, he estimated the impact at 27 percent, 9 percent, and 8 percent of total consolidated revenues of Morgan Stanley, Bank of America, and J.P. Morgan, respectively.

There was a statistically significant difference between the firms. Bear Stearns and Lehman more consistently met or exceeded analyst expectations and showed the highest correlations, implying that they were “managing to analyst models.” Obviously those two firms failed. Goldman showed a correlation to meeting or exceeding expectations (demonstrating the effect of analyst models) but actually had the least correlation among the firms; it was the worst, implying that it was willing to accept losses or deviate from the analysts more than the other firms. This may reflect cultural characteristics and possibly elements that helped Goldman do relatively better in the credit crisis (discussed later).