Validating the Goldman Sachs Elevator

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The Daily Reckoning | Saturday, March 17, 2012 Goldman’s insiders finally begin speaking out... A slight delay in the weekend mailbag... Plus, all the past week’s reckonings for your walkabout reading enjoyment... --------------------------------------------------------------- “Miracle Eyes” Heal the Blind In the 21st Century, a new dawn of medicine has emerged that could soon restore the sight of 10 million people worldwide. It’s a medical breakthrough that is unprecedented in human history. In fact, this amazing technology could eventually improve... and extend... every life of every person on earth. And one tiny California Company, priced under 80 cents per stock, is at the forefront of this revolutionary medical treatment. Click here to get the full details on this explosive penny stock that could significantly advance the field of regenerative medicine — and possibly make you ridiculously rich. Joel Bowman, checking in today from Sydney, Australia... Joel Bowman What could we say about Goldman Sachs that the firm’s insiders couldn’t better say for themselves? For months now, the Goldman Sachs Elevator Twitter page has been providing a kind of perverse entertainment for both Goldman employees and non-Vampire Squids alike. Of course, until recently, nobody could really be certain whether the material published on the GSElevator feed provides an accurate portrayal of Goldman’s corporate environment, or whether it is merely — albeit rather amusing — vociferous libel. Only insiders could really know that. Insiders like Greg Smith. And what would an insider like Greg Smith have to say about the matter, we hear you ask? Well, Eric Fry has a reading from the Book of Smith below. Please enjoy... [This weekend’s feature essay first appeared in these pages on March 15, 2011] The Daily Reckoning Presents Bless You, Greg Smith! Eric Fry Today’s reading comes from the Book of Greg Smith... We hope you will find it both illuminating and edifying. Who is Greg Smith? Well...he is not exactly a prophet...and he probably isn’t a perfect saint. But he seems to know something about the difference between good and bad...between moral and immoral...and between ordinary Wall Street greed and putrid Goldman- Sachs-style greed. Greg Smith was Goldman’s head of US equity derivatives business in Europe, the Middle East and Africa. He ended his 12-year career at Goldman yesterday with a very fascinating “Farewell Letter.” This missive appeared in The New York Times under the simple title, “Why I Am Leaving Goldman Sachs.” It was a masterful exposé...a stinging rebuke of Goldman’s notorious money-first-client-last “ethic.” Faithful Daily Reckoning readers may recall that your California editor has highlighted Goldman’s low-brow behavior on numerous occasions. And he has made no secret of his contempt for the modern “Goldman culture.” But your editor is just a guy who’s trying to peek over the hedgerows...an outsider...a “Muppet,” according to the Goldman lexicon. He assailed Goldman’s moral bankruptcy from the outside looking in, because that was the only option available. But now comes Greg Smith to assail the firm’s moral bankruptcy from the inside looking out. “Today is my last day at Goldman Sachs,” Smith wrote. “After almost 12 years at the firm...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... “I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival,” Smith continued, “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.” “Remember,” your California editor observed a few weeks ago, “[Goldman] was the firm that continuously packaged and sold mortgage-backed securities (MBS) to its clients, while simultaneously building a meaningful short position in the identical (or very similar) mortgage-backed securities. This practice was perfectly legal, but it was also perfectly scummy. “It was a little like selling tickets for an ocean cruise, then buying a disaster insurance on that particular cruise because you had some knowledge that the ship was barely seaworthy. Hey, you didn’t force anyone to buy a ticket for the cruise; you simply designed the cruise, then marketed it and sold tickets. “So if Goldman devoted itself to a series of perfectly legal — but morally bankrupt — business practices during the go-go years of 2005 to 2008,” your editor wondered, “would it not be tempted to do even more of the same during the grim conditions of 2011-12?” Yes, is the answer, according to Smith. “It makes me ill how callously people talk about ripping their clients off,” Smith’s expose continued, “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... 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.” Obviously, conning Bert and Ernie out of their money can be an extremely lucrative business for years. In fact, it has been. But the supply of Muppets with money is not unlimited. Eventually, even Big Bird grows tired of being completely plucked over by his financial “advisor.” Some investors seem to be worrying that a Day of Reckoning for Goldman may be arriving sooner, rather than later. During the last several months, Goldman’s stock (NYSE:GS) has been trailing noticeably behind both the S&P 500 Index and the Financial Select Sector Index. “I hope this [letter] can be a wake-up call to the board of directors,” Smith concluded. “Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist.” True that!...In fact, we made a very similar assertion a few weeks back when we published back-to-back columns entitled, Goldman Sachs is Probably Not a Buy and Goldman Sachs is a Sell. World oil production is about to be shaken to its core... You won’t believe which nation analysts at Wall Street’s biggest banks expect to become the world’s biggest energy producer by 2017 — or the effect it will have on America... our economy... our future... Click here to see who is set to become the new king of oil — and how you can use the news to go for big profits as early as this MAY! ALSO THIS WEEK in The Daily Reckoning... Lose the News By Chris Mayer Today’s topic is “the news.” Specifically, how consuming it can turn your brain into soft cheese and make you a lousy thinker and investor. I think the message here is important — and potentially life-changing. Does it sound like I am exaggerating? Hang in there and keep reading. You tell me what you think after you’ve read what I’ve got here. The impetus for this is an essay by Rolf Dobelli, a Swiss entrepreneur, titled “Avoid News.” Dobelli makes the case that news makes us distracted, wastes time, kills deeper thinking, fills us with anxiety and is toxic to our mental health. His analogy: “News is to the mind what sugar is to the body.” The Property Time Machine By Margaret Summerfield “I wish I had a time machine”. Those were almost the first words out of Mary’s mouth when I met her. Her husband nodded in agreement. I did too. Who wouldn’t want a time machine? I could picture myself going back in time and snapping up Microsoft shares before they became a household name...or priceless Van Goghs, back when the painter, himself, couldn’t even sell one of them...or choice properties in prime locations before they boomed. There’s a Beach for Everyone in Brazil By Margaret Summerfield The Beach is almost a religion in Brazil. It’s where you spend your free time, your weekends, and your vacations. It’s where you meet up with friends, hang out with your family, and play with your kids. It’s where you picnic, savor a chilled beer, or party the night away. And with 4,655 miles of coastline, there’s a beach to suit everyone in Brazil. The beaches in the country’s south grab most of the headlines and column inches. But the beaches in Brazil’s northeast are stunning — and they come with year-round beach weather to enjoy the sand and surf. Tim Geithner Covers for Corruption on Pennsylvania Avenue By Charles Kadlec Last Friday, Treasury Secretary Timothy Geithner charged in a Wall Street Journal op-ed that those who oppose the Obama Administration’s regulatory regime for the financial services industry “seem to be suffering from amnesia about how close America came to complete financial collapse under the outdated regulatory system we had before Wall Street reform.” Au contraire, Secretary Geithner, it is you who choose to ignore and misrepresent the lessons of the financial crisis by perpetuating the myth that the source of the crisis was a lack of regulation. If You Own Any of These Gold or Silver Stocks*... Then you may be eligible to instantly collect a cash payment of $784, $1,324, or $2,345 — without having to sell your shares. (*List also includes technology stocks, retail stocks, and more. For a complete list of all 3,097 participating stocks, see this report.) The Weekly Endnote... We can’s access our reader mail inbox from where we are right now...so we’ll have to give this weekend’s mailbag a miss. That said, your editor would like to thank all those who sent in kind invitations to catch up in New Zealand and here in Australia. If we were able to stop and have a single beer with each of you...well, we’d be in only slightly worse shape than we are now. Next time. We’ll be back on Monday with our usual reckonings. In the meantime, send us your own thoughts on any of the week’s subjects and, as always... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com How to Engender the Return of a Bull Market How Austerity Hinders an Economic Recovery Opposing Trends in Debt and GDP Growth US Employment Figures Continue to Improve Fed Meeting Spillover Aids US Dollar Strength The Orszag Fiscal Crisis Plan The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. 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