The author of the photo, Lee Jeffries, has been documenting The Crisis as reflected on the faces of British folk.
The author of the photo, Lee Jeffries, has been documenting The Crisis as reflected on the faces of British folk.
China is still often misunderstood and frightening to most Westerners. Despite the violence of its development and the cultural divide that separates us, their universal concerns bring them closer to us. As a portrait of modern China through the eyes of people met in the streets, Beijing Strangers let us dive into the lives of different generations and social backgrounds. They share their dreams, fears and beliefs towards themselves and their country.
I think big Eurpean countries like France, Italy and even Spain can simply call the bluff of their financial tormentors, for default at such levels will take down the whole world system. Except that EUROpe is held hostage; this is to say that unless there is political will for a EUROpe that's not necessarily speaking German, the default of any one of the above mentioned trigger the fall of the EURO and everything else. No consolation in anticipating that anyone's moves will be stated as pro-EUROpean, contrasting the other(s)...
All in all, I guess, the eternal problem of Europe is the lack of a natural hegemon. As you notice, I chose to not even mention the UK, which still has to figure out a role for herself after making American folk pop-ular.
To get an idea of the intellectual flavors spicing up the Continental soup, I'm including here an exchange between the French and German intellectuals, as wit were imagined by Romain Leick for Der Spiegel. The Europeans still take their intellectuals seriously, so much so that one may take the following as a discussion in our own Foreign Affairs.
Author Max Gallo, 80, a member of the Académie française, the intellectual high court of the nation, views himself as a "republican patriot." He has spent four decades of his life searching for France's historical identity.Translated from the German by Christopher Sultan
The list of his popular books comprises more than 100 titles. He churns out best-sellers about the French Revolution, Napoleon, Victor Hugo, Charles de Gaulle and World War II. Who could lay claim to knowing the soul of the French people, in all of its nostalgic ramifications, better than this keeper of the seal of a long-faded political sense of mission?
Europe seems to have established a special culture in celebrating round anniversaries of important historical events. With yet another approaching, Gallo is currently working on a book about the months leading up to the outbreak of World War I, the seminal catastrophe of the 21st century, in August 1914. During his work, he noticed an intriguing and unsettling parallel to the current crisis in Europe. Just as in 1914, says Gallo, current events could also trigger a chain reaction, driven by nervousness, panic, conflicts of interest, alliance obligations and practical constraints, which could ultimately defy control by politics and diplomacy.
A hundred years ago, says Gallo, it was the mobilization plans of military leaders, worked out down to the last detail, including train departure times, while today it is the anonymous market powers, banks and market traders, with their computerized commands, that have plunged all key players into "prognostic impotence" and a "chaos of improvised decisions."
Doubts in German-French Relationship
Does the historian and author truly believe that the lights could go out again throughout Europe, this time in a fratricidal war over financial and economic policy? In response to Gallo's appealing and yet seemingly absurd comparison, one could point out, as German philosopher Peter Sloterdijk has done in his remarks on German-French relations since 1945, that Europeans are no longer making war preparations, but instead are solely focused on concerns about the economy. "They have forsworn the military gods and completed a conversion from heroism to consumerism," says Sloterdijk.
Is this sufficient reassurance? Judging by what committed French intellectuals are saying this summer about their perceptions of the crisis and the distribution of roles between Paris and Berlin, it is clear that they are not willing to simply release the two countries, once enemies and now partners (at least according to official parlance), from their passions and the shackles of history.
Each of the two leading powers, Germany and France, possesses a key, and the keys can only be used together to liberate Europe from its tower of debt and the fetters of the financial markets. If Berlin is willing to cooperate, that is. But the German government's intentions are mysterious. There is an unspoken suspicion that German Chancellor Angela Merkel, that unemotional heir to former Chancellor Helmut Kohl, a sentimental advocate of France, could be pursuing a hidden agenda, and that her secret goal is to prepare Germany, the world's third-largest exporter, for the fight for survival in the age of globalization.
Doubt has suddenly crept into the German-French relationship, as with an old married couple that has lived together for too long, in benevolent, ritualized indifference, and is suddenly consumed by suspicions. Ironically, this is happening almost exactly 50 years after the two countries' great postwar statesmen, former French President Charles de Gaulle and former German Chancellor Konrad Adenauer, attended a "mass of reconciliation" in the magnificent Reims Cathedral on July 8, 1962 and, six months later, in January 1963, signed the Treaty of Friendship between the two countries.
During the horrifically banal remembrance of the solemn Te Deum at Reims by De Gaulle's and Adenauer epigones François Hollande and Angela Merkel a month ago, there was no mistaking the lack of originality of the two protagonists.
Where there should be eternal solidarity, trouble is brewing in the friendship. "It's a disturbance of the osmosis, a growing ignorance of the other partners," says Gallo, whose son, also an historian, has just completed a study visit to Berlin. During his first trip to Germany after the war, Gallo says he had "goose bumps" when he saw uniformed officials at the border. "It was still like stepping into another world."
A 'Lack of Empathy'
Business professor and author Jacques Attali, 68, a longstanding advisor to former President François Mitterrand, who brought the young Hollande into the Elysée Palace as a special advisor, also bemoans the "lack of empathy" that he says prevails today between the neighboring nations, as well as the inability of either side to put itself in the shoes of the other. In psychopathology, this lack of empathy as seen is a precondition for the commitment of atrocities and violence.
Attali cannot understand, for example, why the Germans are developing such an "obsessive fear of inflation" in the discussion over European Central Bank (ECB) bailout programs for debtor countries. The national bankruptcy of the German Reich in the wake of hyperinflation in 1922 and 1923 was a consequence of Germany having lost the war, says Attali. He believes that if there is a parallel to the current situation, it ought to be former Chancellor Heinrich Brüning's grim austerity policy during the post-1929 global economic crisis, which led to depression, mass unemployment, impoverishment and, politically, to the rise of the Nazis. Why, he asks, don't the Germans see the writing on the wall, and why do they use the "fictitious threat" of inflation and an imaginary wealth destruction machine as an argument?
Historian and demographer Emmanuel Todd, one of the harshest critics of Germany's economic ordoliberalism, even sees Merkel's "austerity mandate" and her "pact for eternal austerity" in the European Union as a form of "fiscal fascism." Todd believes that two opposing cultures are colliding in the euro zone: the German culture of free competition and the French culture of fraternal equality. Rivalry produces winners and losers, as well as jealousy, resentment and the willingness to engage in conflict. But a monetary union, says Todd, can only exist in the long term if it gives priority to the principle of equality, just as Germany, with its principle of inter-state fiscal equalization, irons out differences in the standard of living.
Has Geopolitics Returned to Europe?
France has also had its skeptics of the monetary union, who don't see the introduction of the euro as the accomplishment of a great European vision but as a ticking time bomb instead. Gallo, whose wife is a member of the European Parliament, voted no in the French referendums on the Maastricht Treaty and the treaty establishing a Constitution for Europe, because he predicted a renaissance of nationalism after the fall of the Berlin Wall. "Geopolitics has returned to Europe," he says.
In the 2002 presidential election, Gallo supported the left-wing nationalist Jean-Pierre Chevènement, a fierce opponent of the euro who saw the common currency as the beginning of a German instrument of domination or, in a sense, the Trojan horse of an age-old German hegemonic claim that has existed since Napoleon broke apart the Holy Roman Empire of the German Nation.
In his recent book "La France est-elle finie?" (Is France Finished?), Chevènement describes a "Germanocentric" Europe in which "France can make suggestions, but Germany gives the orders." Polls in both countries seem to confirm a renationalization of thought. According to the French Institute of Public Opinion (Ifop), only 31 percent of the French see Germany and 18 percent of Germans see France as their country's "preferred partner." These figures have been declining since 2003.
Rivalry or Complementarity?
They reveal the fragility of a relationship that is increasingly based more on calculus and less on affection. The two neighbors' view of each other is also a mirror in which each of the partners sees itself. For some time now two discourses, says German studies Jacques-Pierre Gougeon have shaped the image each of the two countries has of itself and the other: the rhetoric of decline and the rhetoric of ascension. Germany has become the absolute reference for France, says Gougeon, while the relationship between the two partners is a mimetic reflection of rivalry, imitation and projection. The French fear of being left behind, both economically and politically, reinforces the German position that it must assume the function of the exemplary role model in Europe. In the end, says Gougeon, this raises a key question: "Rivalry or Complementarity?
The future of Europe depends in large part on the answer to this question, says Gougeon. French Prime Minister Jean-Marc Ayrault, a former German teacher, has brought in his fellow academic Gougeon, professor at the University of Franche-Comté in the eastern city of Besançon and research director at the Institute for International and Strategic Relations (IRIS) in Paris, as an advisor. The appointment gives the title of Gougeon's latest book "France/Germany: A Threatened Union?" more than rhetorical significance.
Nevertheless, such different intellectuals as Gallo and philosopher Pascal Bruckner feel that Gougeon's question is the wrong one to ask. The problem, they believe, consists in the fact that the two countries are so closely intertwined -- through geography, history, the economy and politics -- that they cannot become disengaged. "It's like an old couple, who both love and hate each other," says Bruckner. "They can't stand to be apart or together, and divorce isn't an option."
Gallo likes to reconstruct the thousand-year German-French rivalry in various forms. The relationship, he says, has always been characterized by familial closeness and jealous distance, an ambivalence that sometimes produces creative and sometimes conflict-laden, permanent tension. When he saw and heard Merkel butchering the obligatory French words "Vive l'amitié franco-allemande" at the chilly commemorative meeting in Reims, he remembered, with irony, the Oaths of Strasbourg in 842. Half-brothers Charles the Bald and Louis the German pledged loyalty and support to each other. So that their followers would understand them, each man proclaimed his oath in the language of the other side. But by forming the alliance, they also sealed the division and breakup of the empire founded by their grandfather Charlemagne.
The mirror-image relationship, in which the Germans and the French have tied themselves to each other, both culturally and politically, could be described as a relationship between foreign relatives. It is characterized by a mutual fascination, what Bruckner calls "a sort of magnetism," which can be both attractive and repulsive, and has ended in violence again and again, in the Franco-Prussian War of 1870, World War I and World War II.
'Twilight Approaching over Europe'
Today France is in the process of losing yet another war, but this time it's an economic war, says cultural pessimist Bruckner, who sees a "twilight approaching over Europe."
Economist Henri Sterdyniak can translate the language of victory and defeat into numbers. According to his calculations, France has lost about 10 percentage points of its competiveness against Germany since the turn of the millennium, or roughly since the introduction of the euro. As a result, what was once a relatively even balance of trade is now a gaping deficit of more than €70 billion ($86 billion), while industrial production is declining and the government debt is on the rise, says Sterdyniak.
Sterdyniak is part of a group of economic experts critical of globalization who call themselves "économistes atterrés," or crushed or appalled economists, and are anticipating a possible crash landing of the euro. According to Sterdyniak, the monetary union was an "inane idea" from the very beginning, because it tied together what didn't belong together. He sees three possible scenarios for the future: implosion, decomposition or an emergency exit.
This sounds so menacing that Sterdyniak occasionally interrupts the explanation of his terrible visions with an ironic chuckle. He explains that the Germans would have to choose the emergency exit. In other words, they would have to deliberately compromise their competitiveness, essentially placing lead in their running shoes, that is, by significantly increasing wages and accepting inflation as a consequence.
Of course, government debt would also have to be guaranteed in the euro zone, through the European Central Bank and through joint liability in a fiscal union. This would be done in return for a promise by countries with deficits to consolidate their budgets. But there is an important caveat, says Sterdyniak, namely that the mechanical rules, which he feels are too rigid, of the fiscal pact Germany is imposing on all others are completely unsuitable." Sterdyniak calls the fiscal pact an alleged debt relief machine that leads only more deeply into debt." Does he believe that Merkel will play along? It would be like demanding that the Germans stop being German, says Sterdyniak. Like in the fable of "The Ant and the Grasshopper," the ant remains implacable toward the grasshopper. For this reason, says Sterdyniak, the most likely scenario is that Europe will continue along the path that Merkel has already proposed, that of slow decomposition, the rotting of the euro zone.
'The Tone Is Getting Sharper'
In the midst of such discussions, it seems that the preparations for the search for a scapegoat are already underway. The instrument of torture that can be shown to the Germans ought to be familiar from history: isolation, encirclement and pillory.
Anti-German resentments have not become virulent in France yet, and yet they are simmering just a few centimeters below the surface. "We are not in an open marital dispute, but the tone is getting sharper," says philosopher Bruckner, describing the psycho-political constitution of the troubled couple.
German intellectuals take a more relaxed view. In his essay Theory of the Post-War Periods, Sloterdijk -- who, next to Jürgen Habermas, is one of the few contemporary German thinkers respected in France -- argues that the pragmatic way leads to a "benevolent and nonviolent coexistence by means of mutual disinterest and defascination." "Don't be too interested in each other!" he counseled the archenemies and friends of convenience.
That was at the end of 2007, shortly after the financial crisis had begun its disastrous course. But the old demons are still lurking. What if Gallo were right with his hair-raising feeling that Europe, through its financial policies, could be drifting toward an August crisis like the one in 1914, with Greece assuming the role of Serbia, which Germany's conservative Christian Social Union (CSU) wants to make an example of?
Political veteran Attali, who was there in 1984 when Mitterand and Kohl shook hands across the trenches of Verdun, believes that it is politically dangerous and even foolish to declare a war between France and Germany to be inconceivable for all time. According to Attali, there are only two opposing strategies to overcome the crisis: Either Europe's core countries, led by France and Germany, pull themselves together and form a true federation, or there will no longer be a euro in a few years.
And if the latter happens, he says, there are numerous possibilities, ranging from a decline into geopolitical insignificance, to more or less outmoded regionalism and a return to drama in European reality.
The post-WWII era is coming to an end. Its most taken for granted institutions, (e.g., the US dollar, NATO, IMF, etc.) and ideologies (globalization, neo-liberalism, etc.) have come under stress, and I take the advent of tea as another sign of the growing Chinese/Asian influence. Such signs can give us an idea-set about one of the directions the world may go into. Our own history, in the western market democracies, that is, gives the complementary directions.
It is not easy to foretell if, let alone how, the world turns Asian. If the capitalist model of growth, based on credit, fiat money and inflation, proves to be irresistible, the Chinese still need to put a lot of work into building up a worldwide financial system, with rules and institutions. This kind of work takes decades and/or catastrophic event(s) to bear fruit. The attractiveness of the Chinese economy in a capitalist scenario consists of its being able to theoretically contain larger bubbles than the rest of world. In fact, the world seems headed into a hyper-capitalist direction where countries assemble in blocs and the individual economic entities grow even more. On its current iteration, the EUro bloc stumbled by being just as resilient as its most exposed economy. If the EUro picks up steam again, the US will have to count its friends and integrate accordingly.
From the western history lessons , one should be reminded, if not told, that market democracies had gone through at least one crisis, similar to the one started in 2008, in the beginning of the 20th century, when the international and national versions of socialism looked like better alternatives to the capitalism that worked for fewer and fewer at the expense of most. Communism and Nazism, those being the two versions of socialism introduced above, had their constituencies even in Britain, still the bastion of capitalism at the time--in fact, there were even top royal British figures flirting with Nazism, while Churchill, the ever ideologically-swinging opportunist, found a vocation in opposing Nazism.
In an economical system predicated on limitless growth, problems on the home front start brewing when the system relegates the willing and educated to un/under-employment. Lack of labor competitiveness can work as justification for only so long before these educated folks give ideological shape to the general dissatisfaction with neo-liberal globalization (e.g., trade liberalization, exchange rate controls, and tax-free flow of money). The western elites (aka 1%) are fully aware of all this, and the never-ending war on terror is just a cover for how far the elites have been willing to go to defend the status qvo ante 2008. Another means to counter the emergence of an opposition to neo-liberal globalization is to quickly consider any alternative as enemy of civilization--you know the usual suspects, extremism, nationalism, socialism, totalitarianism, isolationism, etc.
Also, the S-Ir(i)anian diversions can only take us on collision (or is it collusion?) course with China and Russia. While the Russians have been neatly folded in the world system, and the Chinese have risen within the world system, they show signs of nervousness about their positions relative to the hegemon. Strictly on military terms, the US is still ahead, but otherwise, the defection of Germany and/or Japan to side with the challengers can signal continental shifts. Collision is therefore likely to take place through proxies, whereas collusion would give the challengers first right of refusal over certain places on Earth. Of course, the challengers ought to also face their own internal problems--the Russians have to learn how to live with lowering commodity prices, whereas the Chinese are not anywhere close to having developed a viable growth model/alternative at national scale, let alone planetary scale--but then again, who's gonna call their bluff? The existing credit rating agencies and/or Basel III type of capital requirements... or rather plenty of regional conflicts to the effect of Brzezinskian creative volatility.
To return to the US, the bromides of eventually operating markets, be those economic or political, are wearing thin. In fact, markets are social constructs that need constant oversight under the guidance of whatever socially accepted principles. There is nothing intrinsic to markets that prevents the capitalist excess on its way up or down; markets make only a nice abstraction behind which the few tax the most with impunity. Meanwhile, the US academics, busying as usual with minute correlations, are still to catch up with the enormity of the task. One of the difficulties is the epistemological bias against systemic, or ecological, treatment of the problem. Time for change in the ivory towers will come as the higher-ed bubble may lose some air given the job market difficulties of the ever more indebted graduates. However, Americans overall are catching up--a search by "crisis economics" on Amazon.com yields 57,557 results as of this writing.
So, what seems sensible to do? The Occupy movements and the libertarians are just too conceptually fragile to make any progress, given how time changes things. A locally verified solution of the capitalist excess would be something akin to the New Deal. Rather than plunge ourselves down the spiral of destitution and despair for not having a Steve Jobs among each fifty-thousand of us, we could stop thinking in terms of labor competitiveness on a global scale for as long as the jobs match the skills and the fruits of labor enable the best of us to take the whole economy to the next level up. Turning a blind eye to the under-educated immigrants can only depress incomes of the locals, preventing most American children from becoming the next Steve Jobs. Also, good healthcare and education ought to be human rights, not a matter of personal income.
Another new deal requires that the American elite adopt a historically informed perspective, which the current generation of leaders is found missing. There are also notable exceptions, such as Felix Rohatyn, of course, of a different generation, whose 2009 book offers a blueprint that's workable within the current system.
|MINQI LI pdf|
Please note that Minqi Li indicates that the planet may not sustain a bubble tea, regardless of the capitalist logic of the global investor.
In the middle of a severe economic crisis, and after some disputes with labour unions, one of the biggest supermarket chains in Portugal decides to open for a big promotion on Labour day only, with the pretext of helping the less fortunate. If a customer spends more than €100 he gets a 50% discount. Caos and confusion break out in a few stores across the country. Desperate to take advantage of the discount and faced with emptying shelves, people loot or buy what they can find, raising questions on the motives for the promotion. Is such a marketing strategy really intended to help the ones in need?
Published in Diário de Notícias, May 6, 2012.
The above were posted by André Carrilho, a very taleneted graphic artist, who is also socially aware. Here's my reaction:
If the customers buy using their own money, this promotion helps; otherwise, if it's credit money, the promotion helps only the banks!
The question remains: how is it possible that one can run such promotion? Are the profits so high? I doubt, but one should still think of this question.
At a different level, yet, this may well be a signal of the readjustment in progress: we'll have to work for much less.
Eric Kandel, Paul Holdengraber, and Madeleine Viljoen
Photo Credit: Jori Klein
THE AGE OF INSIGHT March 28, 2012
In turn of the century Vienna, an extraordinary mix of scientists and artists—Sigmund Freud, Gustav Klimt, Oskar Kokoschka and Alois Riegl among others—gathered and collectively began exploring a fertile new territory: the unconscious. In his forthcoming book The Age of Insight, Nobel Prize-winning neuropsychiatrist Eric Kandel brings to life this pivotal time, when the Modernist age was born and a new model for the human brain and creativity was forged.
In conversation with Paul Holdengräber, Eric Kandel will discuss the book already praised by Oliver Sacks as "a tour-de-force that sets the stage for a twenty-first century understanding of the human mind in all its richness and diversity."
|The 1318 transnational corporations that form the core of the economy. Superconnected companies are red, very connected companies are yellow. The size of the dot represents revenue (Image: PLoS One)|
The top 50 of the 147 superconnected companies
1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company
* Lehman still existed in the 2007 dataset used
The Network of Global Corporate Control
GREG SMITH has recently come out with the his reasons for leaving Goldman Sachs. Following is his open letter.
TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
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.
It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.
But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.
I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.
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.
Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.
How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for 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) “Hunt Elephants.” In English: 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.
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.
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.
These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.
When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.
My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.
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. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
Greg Smith resigned from the position of executive director and head of the Goldman Sachs' United States equity derivatives business in Europe, the Middle East and Africa.
The NYTimes readers said the following:
GT LaBordeBirmingham, AL
Thank you, Greg for speaking out. I have been a Goldman client since 2006, and have been trying to get my money out for several years now, to no avail. My money was placed in proprietary funds that have under-performed other similar investments and were clearly designed to maximize Goldman's profit at my expense. I am not allowed to get money out of these investments, in some cases for up to 8-10 years, without a significant "haircut" (hmmm, I wonder if Goldman partners profit from the haircut??).
In one of these investments (which has lost 35% of its value since 2008), Goldman even refuses to provide basic information, like estimates of income or expenses for tax planning purposes. I literally have to guess the income my K-1 will show when I file my taxes in April, because Goldman won't even give me an estimate (much less quarterly or annual commentary or disclosure by the fund managers). In many years, the fund shows substantial interest income (on which I have to pay taxes), but none of that income is ever distributed to me and the NAV of the fund simultaneously goes down. Where did the income go? When asked, Goldman refuses to provide specifics (even though I am a limited partner of the investment partnership and have a right to this information).
It is amazing how little Goldman cares about its customers. Goldman exists for the sole purpose of enriching its partners.
I resigned from more than one company where integrity was seriously lacking. In my first position, I was ordered to help clients lie on financial statements and change invoices - the partner actually handed me a bottle of white out! I was ordered to be a part of hiding a pension shortfall that I discovered and was walked out for refusing to go along.
I have paid a price for walking away from these 'great opportunities', but I sleep well at night. You are brave to take a stand for your clients and for your own integrity. I applaud you for walking away and for speaking out.
Congratulations Greg. I hope your coworkers read the NYT. I'm sure they will have a good chuckle and maybe a nanosecond of self-reflection. If the financial catastrophe of the last few years did not affect them, I doubt your farewell letter will. They need tighter regulation and oversight, and less gullible clients. Does anyone really question why the Occupy Wall Street movement started?
I believe the change in culture you've seen at Goldman Sachs is just a reflection of the change that has taken place in our national culture over the last few decades. When I was growing up, no one considered a person's wealth to be an absolute measure of his or her worth to society. Now, for a large part of our culture, that has changed; the acquisition of wealth is seen as good, no matter how it is achieved.
Money-grubbing behavior is rewarded, and victims of such behavior are considered fair game, not just at Goldman Sachs, but everywhere. My cable company charges huge fees out of proportion to what it delivers, but fails to adequately staff customer service to field complaints. My bank has added ridiculous fees for just about everything except were expressly prohibited by law. I am put on hold for large swaths of time to get just about anything fixed. There is a fervor for ever more tax cuts for the wealthy, paid for on the backs of the middle class.
Our whole attitude about what is important has changed, and in my opinion, not for the better.
A moral decision is to be commended regardless of circumstance; coming of age in a culture that prizes the making of money to the exclusion of everything else makes reaching such a decision doubly difficult. Mr Smith is to be congratulated for his personal revelation.
However, the survival of the company pales next to the slow-motion chaos into which this behavior - by no means confined to GS - plunges the real world on a regular basis. Of course it's very clear that those responsible are not the least bit interested, for reasons mentioned in the article.
If Mr Smith is interested in clearing his conscience, he might consider working to advance real regulation of the industry - at the very least.
James StrangeCanton, Connecticut
Unfortunately my factory-working friends who took such a big hit in this latest recession don't read the NY Times. If they saw Smith's article they might then begin to see that it wasn't big government deficits that brought down the economy but this Wall Street "take the money and run" mentality. It's the way American CEOs run our corporations and it is this mentality that destroys morale all the way down to the factory floor.
Paul Cohen, Hartford CT
What took you so long to have this epiphany? Why do you think Goldman Sachs and the rest of Wall Street bankrolls legions of high-priced lobbyists in Washington? To protect its clients and consumers? And show me one large financial services firm that places the interests of the client ahead of its profit motives? Do you plan on returning any of your large bonuses (gratis your fellow con artists) back to your clients as an apology? If not, how about the taxpayers? Forgive me for being so cynical, but gag me.
John Riley, Atlanta, GA, In reply to Paul Cohen
I don't think you attack on Mr. Smith is called for.
It takes a long time for people to come to the painful realization that the place you have dedicated your career to is morally bankrupt, and not worthy of your time or energy. Mr. Smith realized this, and left in a way where he would expose much of the misaligned culture, and hopefully bring about resolution. That takes courage.
In my view, if he, regardless of the company as a whole, worked in the interests of his clients, then he should be entitled to his bonuses. I would agree that the company as a whole is too money-focused, and that many of the wrong people are getting lavish bonuses, but he just committed career suicide. I would say Mr. Smith can keep his. Additionally, Goldman Sachs has also repaid their entire TARP loan, so there is no need for him to "repay the taxpayers".
James WattAtlanta, Ga
I am impressed not only with your honesty but your courage to give others insight and to remind them 'honesty' is a gift you give yourself so it's easy to lose forever. And of course your intelligence to leave. It is sad today our financial and political leaders lost sight of the prime directive. "Do NO Harm". and replaced it with "Make A Buck." regardless of the method. But then again in a society where dishonesty is not only tolerated but also toasted at the finest restaurants, clubs and churches of the Western World surprise is not the reaction but has been replaced by desire.
It's more than ten years old , but I've read the very same story before: 'Liar's Poker,' by Michael Lewis. Or look around. As an economic culture, we've stopped being stewards of the land and started being cannibals.
I find that these testimonials are important to help change the corrupt and rotten financial culture that surrounds our society. The sad part is that a company like Goldman Sachs has far too much power and controls not only the wealth of the wealthier, but also the wealth of independent countries. After the 2008 collapse, independent States all over the world have injected huge amounts of tax payers' money to cover for the blatant mistakes and greed of Goldman Sachs (and others). Now the people of the more vulnerable States, which little industrial and productive power, are being sacrificed so that this spiral of lunacy can continue. As a citizen of one of these countries that is being sacrificed - Portugal - I demand that my elected leaders stop pampering for these lunatic companies like Goldman Sachs and stop imposing harsh austerity measures that will lead us nowhere and will only destroy the social fabric of our country. However, I fear that this will not happen, because as we saw in Italy and Greece, when elected leaders stop cooperating with these powers they are simply replaced by former Goldman Sachs executives...sad world we are living in.
Brave man -- its one of the hardest things to do to rebel against culture like this at a company. Sometimes you have to publicly resign in order to make a point, and its good to hear the truth about what is really happening now at these firms. I am not sure many are going to exist soon (we've already lost many, like Bear Stearns), and I am not sure thats a bad thing. Power without any ethics or morality is always a dangerous thing, and these companies wield enormous influence over our banking system.
I don't think things have changed that much at GS in the last 12 years. He must have joined right after the internet bubble collapsed, which GS was a big part of, hyping companies that had no real business plan. And then they moved right on to double-dealing toxic mortgage products. So the only thing that might have changed in the last 12 years isn't GS' culture but Mr. Smith's assessment of that culture.
The thing that really changed GS is the change from a partnership to a public company in 1999, just before Mr. Smith joined. Suddenly, the risks are off-loaded from leadership to shareholders, quarterly earnings become the focus, and management is free to wheel & deal any way they want to with little consequence to them. That has created a huge moral hazard and nothing is being done to control that.
Katherine in PAPhiladelphia, PA
This is what happens when traders (many of whom would step on their grandmother for a profit) take over a firm that is basically a relationship business. Bravo to Mr. Smith for pulling back to curtain on this toxic enterprise that absolutely used to be one of the most respected firms on the planet. No more. Matt Taibbi had it exactly right with his "vampire squid" description. Washington: Are you listening? Isn't it high time to put some of these hot shots away?
There was a time when I aspired to be a client of Goldman Sachs. As the 2008 story unfolded, it became clear that your former company had taken a turn away from serving customers and, more importantly, from being a good corporate citizen. This "disease," as many have reported, continues to infect our economy and to shake our trust in financial institutions. We have a a fear of what you have confirmed: that we can't trust our money to them. Once on deposit, it ceases to be our money and becomes theirs for the taking. In most industries, leaders know that once the customers become secondary, the business compact is broken. Thank you for speaking out.
Lay off the man, he has publicly done the right thing at great financial (and no doubt social) cost to himself. He has a conscience. What he says about the old Goldman culture is well known and I believe the shift speaks to a broader shift in loss of shame in our culture. We now are so collectively narcissistic that the individual pursuit of money at any cost has created a risk-taking environment that is unsustainable. See this in the orders-of-magnitude increase in compensation form the 1980's to now; a billion is the new million. There is no sense of shame in making $10-100 million a year just for skimming a large transaction, but worse, there is a new sense of entitlement and belief in one's greatness born of such money.
In 2008, I worked for JPMorgan Chase, albeit at a lower level than Mr. Smith. I spent a year trying to tell managers that there were all kinds of abuses going on with respect to disclosures about mortgages and home equity loans. All paid me nothing more than lip service. They couldn't have cared less about the client; it was all about their bottom line. Then the housing market crashed. Surprise.
I wrote a letter to Jamie Dimon, expressing my concerns. I got a call from one of his flacks in personnel. And instead of saying we'll look into this and fix it, her question was "Well, what do you want?": corporate speak for "What do we have to do to shut you up?"
Ultimately, I left of my own accord, and permanently said goodbye to any kind of "financial service" enterprise. It may sound quaint, but I'll take my personal ethics over the almighty buck any day; it beats feeling like you need a perennial shower.
John WoodsMadison, WI
I have long felt and written about the purpose of an organization: it is to create a mutually beneficial relationship between itself and those that it serves. Whenever an organization does not do this, it undermines its long-term survival. Another thing I am sure of is that profit is a way to measure the quality of service to others because you have created a lot of value for them. Losses measure the same thing. GS is very profitable, but apparently this is because it manipulates the system and exploits its customers for its short-term gain. This is a formula for its eventual demise.
I hope this article is a wake-up call for Goldman's clients and management. If I had money with this place, I'd get it out now. If management focuses on profit rather than service, it is doing exactly the things to bring about its downfall. I seriously doubt that the current management of this place can make the changes necessary to turn this firm around. Their heads are in the wrong place. They have created this toxic culture to which their employees are adapting. I hope the board throws them out and brings in those who understand the first sentence of this comment.
Organizations are part of the larger environment and society in which they operate. They look out for themselves by looking out for that of which they are a part. GS seems to be doing all it can to destroy that environment and take itself down at the same time. Thanks to Greg Smith for calling them out.
Well, as far as I understood, scamming Greece and defrauding European budget seems very in line with the "true" GS spirit, right, since it happened 11 years ago...
SteveNew York, NY
Reflective of our entire society. I know someone who went to a Chiropractor's conference and virtually all the classes were on dealing with Medicare, insurance companies, and marketing, in order to maximize profits. No classes on new techniques or research.
BantyUpstate New York
These problems proliferate due to ubiquity. If the clients know that the firm down the street has the same practices, there's no place to go. These firms routinely benchmark against each other (there is a whole industry devoted to that kind of report) to know what their latitude is, and make sure they aren't leaving a penny on the table.
Kevin RothsteinNew York
We should have broken up the big banks after the financial meltdown. I hope clients pull all their money from Goldman after reading this article. I have more respect for loan sharks than I do for any Wall Street banker who does not represent the best interests of his clients. At least a shark does not hide what he does.
Unfortunately, with the decline of pensions in America, most workers are forced to invest in 401(k) and 403(b) structures that abuse the customer. Most of the funds that are available to workers within these 401 and 403 plans are high cost, low performing mutual funds. One of the plans that we were in, did not even list all of the companies in their mutual funds. They called it “proprietary information”. How is that for arrogance and distain for the customer?
My wife and I were in different pre-tax pension plans for decades and none of the funds provided account statements that made it easy to calculate capital gains. It would have been easy for them to do, but they didn't want us to know the numbers. Most of our growth in equity was from our contributions, rather than from capital gain.
When we finally changed to IRAs in order to gain control of our investments, the mutual funds fought our efforts to move money from their funds. They set up roadblocks and threatened us with tax consequences. It takes a lot of work, discipline and research to manage one's investments. Mr. Smith confirms some reasons why retail investors have left the stock market.
Thanks for sharing Greg, incredibly interesting - and not a big surprise really! Capitalism at its best puts the best product or service in the hands of people at the best price, through fair competition. What Greg describes seems to be the fashionable version of capitalism at the moment; short term gains, how can I profit before it all goes up in flame? How can I trick people to buy whatever I'm selling, no matter the the consequences? It is ugly. It is the self-destructive impulse of capitalism at its worst. In ancient Greece the opposite to the vice pleonexia, greed, was the virtue of justice. In ancient Rome, the word 'idiotes', meaning private citizen, could be used as a dergatory term for someone who would look at their own gain ahead of that of the community. We all know the modern word etymologically related to it..
I have found that epiphanies usually occur after the youngest sibling has successfully negotiated her/her expensive college and/or the appropriate share package has matured.
Christopher DeloguLyon France
John from Philadelphia praises you as a "brave man," ok maybe, but I can't help thinking of Olympia Snowe's recent decision to leave the Senate for similar reasons of conscience and disgust with the dominate culture and thinking that her and your departures from your organizations leave a hole that is likely to be filled by someone who is more extreme and has more conformist instincts and less conscience than you. You have become such a big cheese at GS and yet feel that you, you of all people in the organization -- not exactly the junior cog -- would rather quit 'em since you claim to not be able to beat 'em, is that it? This is a sad confirmation of Tocqueville's fears about the omnipotence of the majority and the tendency of whistleblowers to be either drowned out or, as in your case, to drown themselves (Democracy in America, vol 1, part 2, chapter 7). I hope some of your GS associates who share your views stay on the job, otherwise it's just more tyranny of the majority and group polarization full speed ahead. Yikes!
Oh it must sting to be sitting in the GS HQ and to read Mr. Smith's letter just now. I left a great position to join GS some years ago, mostly out of curiosity. The firm had interviewed ~28 people for the position and thought I'd give it a shot. I drank the Kool-Aid, but wondered if the firm lived up to its ideals. In the four years that I was there, I found that it did not. When commenting to management about having observed how my colleagues would accomplish important projects at far higher costs than necessary, I was advised of two things: 1) Be more humble as I was violating the firm's "corporate culture" by being seen as "bragging" about the commercial efficiency of my transactions and enumerating the value of the cost savings achieved when compared to the decisions made by my colleagues (sometimes in the $M's). My manager would refer to these funds as inconsequential, "a rounding error" on our balance sheet; 2) That I should not worry, because "GS isn't and will never be the low cost provider of services." In doing the best that was commercially possible, my behavior wasn't consistent with the developing Goldman culture, and after four years, I was laid off. Thank goodness!
Alas, Greg, you are a voice crying in the wilderness that is modern finance. You will be considered by the elite as about as out of touch as Judge Hardy in those old Mickey Rooney movies from the 1940s. Too bad. I shudder to think what Judge Hardy would have to say about modern financiers. The words scoundrels and unpatriotic come to mind. Their loyalty is to themselves alone. For now Goldman is still living on its past reputation, but for how long? When I am not happy with the way I'm treated, I take my custom elsewhere. I suggest investors with GS do the same.
GeorgePalo Alto, CA
Thank you for your honest, heartfelt column. I find it particularly distressing because I am a Stanford student, as you once were, about to embark on my summer analyst internship at Goldman.
Maybe things are different at the top, but during my interviews, I certainly did not talk about working only to make money off the client. I knew what I was supposed to say, and to be honest, I meant it. I do want to serve clients. That is what I have done at every job I have had up until now, and for me, there is no greater satisfaction than doing a good job for someone else. We can all work for ourselves, but working for others requires a belief in a cause and deep, selfless motivation. Unlike the trash-talkers in the comments here, I do believe there is an important purpose to investment banking and finance in general, and I accepted the internship for this summer so that I could see it for myself, learn the skills that Goldman teaches so well, and decide if it was for me.
Granted, I know how much obsessing goes on in finance about who gets paid what bonus, and where people get promoted, and who has the most swagger. Yet I do not think these attributes are unique to finance. It just happens to be a magnet for ambitious people. If they have been led so astray, as you say, then I can only hope someone more visionary and ambitious will lead them back.
Now I must return to my IR paper. It's 5:30am here, and I'm still getting ready for those ibanking hours.
I surely trust that you will use the funds you have received to maintain a reasonable lifestyle. Poverty is good for literary status but prevents one from affecting the world. I see this as a great victory for the people. A person of substantial skill and insight has left the bad guys with knowledge that may be used more constructively. We have huge financial issues, like when 20% of the people can produce all we need, what do we do with the rest. Our politicians can’t even understand the issues, and here we have someone that may be able to assist. A Victory! Welcome Greg, and come on over any time!
* Reference to another Apple Cart
N.B. The different background colors are meant to suggest few of the dimensions of this situation.
|by Marek Cejka|
It has been a while since I last blogged. Events unfold at slow pace, and some of the events belong to trends I had hinted at here.
Now, it seems that the continental drift is apace, at least in geo-political terms. Greece is just the tip of the iceberg, and I suspect nothing less than the western growth model is at stake--by credit vs. organic. Some, especially in the English speaking world, may want to argue that we are going through another capitalist cycle, whereby the excess of the last two decades is being cut to size. I think the continentals would 'like' it the German way, or do they? We'll find out in March when the hands in favor of the Stability Pact are counted out. I can only say that the Europeans cannot get away from sixtysome years of dollarization on the cheap, yet this poker-like game goes on. Look out for elections in France and the radicalization of the European street.
The complicating factor has been for some years the Asian re-centering of the world, which also pulls the US and Europe apart, and this is most unfortunate. I, for one, would rather compete with the Europeans, otherwise the whole baseline for competition goes back a long way, wiping clean many a gain made by the western middle-classes.
On the other hand, I invite you to consider the following. How is it possible that the Greek olives rot on trees, yet a kilo of olives, or a litter of olive oil, has not come down in price despite the Greek economic tragedy? Is this a failure of human imagination, or of the ways of commerce at the hands of the multinationals whose logic defies common sense?
I think our unit of capitalism--be it production, trade or finance--has been allowed to grow so big, in order to better compete globally*, that human ingenuity is mostly misdirected in societies with little understanding of cause-effect relationships. In a way, this is a measure of the colossally material success our society has achieved, and some great minds in times past saw it all coming.
Some claim this is the result of increased complexity and advocate for a return to simpler forms, or a reduced role for the state. I wish I knew how we could manage such undoing, other than being resigned to accept a lower station in life--except that such process would require fairness and that's nowhere in sight, neither within , nor among countries.
Others do want to restore the status-qvo ante by all means left at their disposal, read war, for we still live in a post-ideological time. As I wrote elsewhere, for US, the worse it gets the better it is, provided that it's all denominated in dollars. I take this to be a generational failure, for war is still one of the biggest known unknowns, and the top incumbent stands to lose the most.
(*) Surely, the reader recalls this being the default justification for allowing anti-competitive mergers to take place.
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