The Real Deal

The Book of the Week is “The Real Deal, My Life in Business and Philanthropy” by Sanford Weill and Judah S. Kraushaar, published in 2006. This career memoir describes how, over the course of about fifty years, Weill became a major change agent in the American financial services industry. His specialty became leading the execution of mergers and acquisitions for the investment, banking, and insurance companies of which he was an executive and board member.

In spring 1960, he started a securities brokerage, actually on Wall Street, with three partners. The stock market was bearish in 1962 and 1963. Interesting Side Note: “The typical stock in the Dow Index had a price 23 times its earnings as this downturn began, compared to a multiple of only 10 times in the early 1950s.”

Through the years, he gained more and more power and accumulated more and more wealth. When he attended events at which he had to speak to stockbrokers, he adopted a policy of brevity, saying, “You’ve heard enough speeches– what questions do you have for me?”

Although the author fostered a corporate culture of informality and “Management By Wandering Around” at his own company, in many instances, he failed to take into consideration the culture of the target company. His strengths lay more in bringing the top executives of the parties together to do the deals, and negotiating the new management structures. It was ironic that he was such a poor judge of how the two cultures would mesh once the integration process began.

At times, Weill tapped the power of his friends in high places, one of which was the government. It helped him change federal law to allow transactions to proceed. For instance, prior to 1999, certain banking and investment banking services could not be legally offered by the same company, due to financial conflicts and possibilities for abuses. He and his cohorts had a hand in making the historic change so that people within the same company could offer their clients all kinds of financial services.

Weill describes a whole bunch of instances that provided evidence for the necessity of strict financial auditing laws. In just a few years at the turn of the 21st Century, greed had spun out of control in the industry, leading to the accounting scandals of Enron and WorldCom, the dot-com crash, and a major hedge-fund crash that required a bailout. A terrorist attack didn’t help, either. By 2002, the chickens had come home to roost in the form of a bear market. “The regulators, the press, and politicians of all stripes…” played “the game of pointing fingers.”

And yet Weill writes, “…governance rules mandated by Sarbanes-Oxley (enacted in summer 2002) made it seem likely that bureaucratic needs would trump the fun of the business.” He also complains that businesses would have to spend more money preparing their financial statements. Sorry about that, Mr. Weill. Yes, pesky, bureaucratic, expensive laws reining in greed are no fun.

Six years later– same song, different verse… a whole lot worse. Need it be said– The more things change, the more they stay the same. History will continue to repeat itself, given human nature.

Read the book to learn the details of Weill’s career ups and downs and trials and tribulations. This blogger skipped the last chapter, in which Weill merely rambles on stating his opinions, and the endnote, which is an interview with his wife, whom he lavishly praises as loving and supportive throughout this ebook.

Why I Left Goldman Sachs

The Book of the Week is “Why I Left Goldman Sachs” by Greg Smith, published in 2012.

This career memoir details how the author experienced the change for the worse in corporate culture of stock brokerage Goldman Sachs (GS) over the course of a little more than a decade, from 2000 to early 2012. The company lost its way in terms of its mission and values, which embodied fiduciary duty and integrity.

In 2000, the author completed the selective, elitist, highly coveted summer internship program at the brokerage. He saw how principled the money managers were in recommending truly suitable transactions to their clients; not necessarily the most profitable ones.

When he began working there as a full-fledged staff member the following year, he took to the work, possessing the right combination of talents, skills and abilities to focus for long hours on conferring with clients and doing what was financially best for them. The goal was to build trust in order to foster a long-term relationship. It stands to reason that that is a more profitable course of action than seeking to rake in maximum money in the short term– which would provoke disloyalty from the client, when the client realizes he’s been taken advantage of.

Smith writes that a gradual change was occurring at his workplace around the start of 2005. At the time, he admittedly was “drinking the Kool Aid” like everyone else. The megabucks were multiplying because conflicts of interest were increasing betwen the brokerage and the government and other entities with which the brokerage was associated in various ways. The CEO and COO of GS were all for it. Their yearly letter to shareholders reasoned that such conflicts were inevitable, and were a sign that business was good. A telling example: GS netted approximately $100 million when it helped its client, the New York Stock Exchange merge with publicly traded, electronic exchange Archipelago in a $9 billion deal.

In the early 2000’s, one trend in the securities industry that would contribute to huge financial losses for the big firms including GS, was automated trading via software. The autotraders of the different firms were programmed to engage in largely the same behavior. They sought to trade in obscure, off-the-beaten path investments in markets in which it was difficult to find a buyer when it came time to sell. And they were all trying to sell at the same time. That was not a condition the autotrader creators had anticipated.

Another aspect of the big picture was that the people selling the financial products– more specifically, derivatives– did not themselves, understand what they were selling. It might be recalled that a derivatives debacle plagued the securities industry in 1994. Apparently, in 2007-2009, the greedy people involved in this rerun of a financial catastrophe failed to read their history, or had short memories. And governments of entire countries like Libya, were suffering losses of billions of dollars, thanks to GS, in 2007.

Read the book to learn much more about the outrageous occurrences borne of avarice witnessed by the author and the world during what became for him, an ordeal, characterized by the saying, “The fish rots from the head down.”

Bonus Post

This blogger “clicked” through the ebook, “Webs of Power: Notes from the Global Uprising” by Starhawk, published in 2002.

The ebook is the author’s description of what her activism is about. She explains that the way globalization is currently occurring is wrong because big corporations are favoring money over people. Greedy corporations (and governments) are destroying the earth and life on earth.

One specific way governments are allowing this, is through the World Trade Organization. The United States joined the Organization and signed the trade agreement called GATT. That agreement lets the Organization, whose member-countries’ representatives, appointed via cronyism, make laws whose disclosure is denied to the world. No hearings of their proceedings are permitted. The actions taken by this secret society affect workers and human rights worldwide and of course, the environment.

The negative consequences have included, for example, allowing poisons to permeate the world food supply, endangering species and keeping drug prices high, all to the benefit of global corporations. What is not a secret is that those companies have, in recent decades, increased their profitability by moving their production facilities to nations where they can get labor at minimal cost while avoiding pesky health, safety and environmental laws. The author argues that this has also resulted in significantly increased income inequality the world over.

Read the book to learn of additional ways greed and power hunger are wrecking the world, and the role the author has played, through planning and organizing protests, training protesters, protesting and writing in trying to prevent further harm; and of her various proposals for governance and allocating resources in ways that do the greatest good for the greatest number.

Diary of a Hedge Fund Manager

The Book of the Week is “Diary of a Hedge Fund Manager” by Keith McCullough and Rich Blake, published in 2010. This sloppily proofread ebook is about McCullough’s passion for ice hockey, and personal experience on Wall Street in the the single-digit 2000’s.

McCullough grew up playing hockey in the Thunder Bay area of Canada. He had a dream of playing professionally, but built a career in the stock market in the United States instead.

At the turn of the 21st century, Ivy-League college connections allowed McCullough to get a job with money managers. He spent a short time at a few places, having been lured to the next place by more money. The companies were able to run legalized Ponzi schemes because they had “… access to institutional channels, corporate and state pension funds, nonprofit foundations, and university endowments, not to mention the world’s wealthiest individuals…”

Most of the hedge funds of that period engaged in poisonous groupthink– cartelizing behavior (but apparently were never taken to task by the government for price-fixing/monopolistic practices)– they all bought the same stocks to overhype them and push up their prices artificially. They “… had devolved into nothing more than highly touted engines for producing excessive compensation.”

Read the book to learn:

  • the steps McCullough took to co-found a hedge fund and how he and it fared;
  • what else he has been doing;
  • how he defines a trade, a trend and a tail; and
  • the method he uses and philosophy he espouses to sense what is going to happen in the market.

Here are two hints: He thinks closing share prices and integrity are very important.

Bonus Post

This blogger skimmed “Too Late for the Festival” by Rhiannon Paine, published in 1999. This ebook recounts the expatriate experience of the author, a tech writer, at the Hewlett-Packard office in Japan starting in 1985.

Paine describes in detail the then-culture in Japan, which discriminated against women in the office. Fluent in English, “Miyuki had graduated from Keio, the top private university in Japan” and yet could get only a low-level secretarial job with H-P, where one of her tasks was to serve tea twice a day.

Paine was tolerated as a tech-writer because she was a foreigner, but was still treated as an outsider. She was on a long-term temp assignment, for which she was grossly overpaid. However, she felt unfulfilled, as the tech product was obsolete by the time she was done with her role in the project. As is typical at a lot of American companies, the boss was just giving her make-work to justify the department budget and his supervisory power.

One quirk of Japanese culture this blogger found interesting, was with regard to the commuter trains. The author was taking a train, and suddenly informed by a traveling mate that they were going the wrong way. The reason was that some commuter trains are split at a particular station so that one portion departs in one direction, and the other portion, in the opposite direction. That doesn’t happen in the United States.

Read the book to learn of many other aspects of Japanese culture, and the fate of the author.

Bonus Post

This blogger skimmed the ebook, “The Law of the Jungle” by Paul M. Barrett, published in 2014.  This is the story of a decades-long court case involving oil contamination in the Amazonian rain forest of northeastern Ecuador, to which a number of cliches apply:

Pox on the houses of both the plaintiff and the defendant;

A man is known by the company he keeps; and

When you lie down with dogs, you get fleas.

Starting in 1993, the plaintiff, represented by a greedy, egotistical, loudmouthed, yet shrewd attorney– Steven Donziger– claimed that defendant, Texaco, and then successor Chevron oil company, had caused illness, deaths, and damage to the quality of life of thousands of farmers and tribesmen in Ecuador. The Amazonians were allegedly poisoned by the oil-contaminated streams where they fished, bathed and gathered drinking water. The oil company had established a presence in their villages since 1964, when it forged an agreement with the Ecuadorian government to drill on 3.5 million and later, 4 million acres in the Oriente region.

The author tells a suspenseful, controversial story that reveals valid arguments on both sides. There was evidence of serious disruption of villagers’ lives. This included cancer clusters and other health issues that plagued the Ecuadorians, pollution of the place where they lived, the unintended consequence of violent fighting for jobs and over income inequality between Indians and homesteaders, etc. directly attributable to the activities of, and inept cleanup of, oil that allowed spreading of toxic chemicals by, the petroleum companies. On the other hand, over the years, the economy of the country of Ecuador made great strides due to the companies’ building of, and heavy investment in, transportation infrastructure and the side effects of job creation and good political relations that would not have occurred but for the corporate presence in Ecuador.

According to the author, the plaintiff’s attorney went after “big oil” rather than “… a struggling national government responsible for letting down its people” because big oil had more sex appeal. It could also be that big oil had deeper pockets.

In sum, “The oil pollution suit was not unique. Ecuador’s judiciary had a well-earned reputation for corruption and chaos.”

Read the book to learn of the various sleazy tactics employed by both sides in the dispute, and to get a concise, eloquent summary of the whole story– read the “Conclusions” section of this ebook.

Bonus Post

With the U.S. midterm elections approaching, this blogger paged through Al Franken’s book, “The Truth with jokes” (but it isn’t funny), published in 2005. It is mostly about:  election, military and economic issues in connection with George W. Bush’s first term.

One controversial issue (still a relevant question years later) that Franken covers is that “…seven months into the [Iraq] war, Donald Rumsfeld wrote a memo asking whether we were creating more terrorists than we were eliminating. ‘We lack the metrics to know,’ he lamented at the time.” A few years later, the government admitted it had the metrics– statistics on terrorist attacks– and the answer was yes.

In 2000-2001, when Bush was first “elected,” Federal Reserve Chair Alan Greenspan was excited that “After eight years of Clinton-style fiscal discipline and economic growth, the era of big deficits was over, and we were running surpluses…” As is known now, Greenspan’s assessment of America’s financial shape turned out to be a bit off the mark. By 2005, the U.S. government had to borrow $2 trillion.

Therefore, the Bush administration might have been wrong in predicting that Social Security would run out of money by 2042. There were then murmurs about privatizing it. Al Franken and his political ilk squelched Bush’s attempt.

Nevertheless, Franken has done extensive economics research, as is shown in this video:

This blogger thinks it is well worth watching in its entirety.

Jeffrey Sachs

The Book of the Week is “Jeffrey Sachs: The Strange Case of Dr. Shock and Mr. Aid” by Japhy Wilson, published in 2014. This ebook emphatically argues that the highly influential Ivy League economist Jeffrey Sachs has wreaked havoc on at least three nations’ economies in the last thirty years with his non-stop publishing, lecturing and implementation on and of, (in the author’s opinion) delusional, elitist, anti-communist, anti-union schemes; he is, arguably, an economics criminal, so to speak (the counterpart to a war criminal) in that the implementation of his policies caused deaths. As an aside, this blogger disagrees with the author’s spelling of “publically” rather than “publicly.”

Sachs has refused to acknowledge that his “shock therapy” method employed in Bolivia, Russia and Poland was a dismal failure. It was supposed to help them make the transition to capitalism through conferring responsibility for previously government-led distribution of goods and services, to private citizens without warning them of extreme measures to be imposed in accomplishing this. The countries were forced to adopt a model at the far opposite end of the spectrum of the welfare state.

Sachs’ first victim, Bolivia, was experiencing 60,000% inflation and 20% unemployment in the summer of 1985. By 1987, pursuant to Sachs’ plan, a free market had been created, but the costs included a 50% higher unemployment rate and a 40% lower real-wage level. Over the next five years, the mining and industry sectors lost jobs by the tens of thousands.

In Russia, a few powerful wealth owners were already experienced in “managing” assets, so their receiving additional private property–  with no laws requiring them to treat their workers in a humane manner– made them even more exploitative. In the early 1990’s, leader Boris Yeltsin became a convert of Sachs. The result was mass corruption.  On the other hand, this has helped the United States and other nations with already evolved capitalist systems to maintain their economic dominance in the world. This blogger is not saying such a goal is right or wrong, but merely suggesting that this might have been Sachs’ goal.

Sachs also helped the rich get richer in Uganda, by providing specially chosen farming families with certain resources, such as fertilizer and seeds, in a few villages. The goal was to have those politically connected farmers “… magically combine entrepreneurial self-interest with community spirit, based on a patronizing representation of the deserving poor.” This smacks of a similar kind of mentality in the New York City schools under former Mayor Michael Bloomberg in the early 2000’s, based on the mistaken notion that all students were bound for college. Sachs’ program started charging money for conferring some of its resources, “… which inevitably privileges those with the ability to pay.” Bloomberg imposed various policies (still in effect as of this writing), that inevitably privilege those students who have the ability to pay for private school, and testing and tutoring services. That is just the tip of the iceberg in both cases.

A World Trade Organization conference in Seattle in 2000 was discontinued because “… Suddenly, this orderly world of billionaire philanthropy and elite policymaking was overturned by massive street protests involving unions, NGOs, and activist groups, demanding an end to the global neoliberal agenda of free trade, privatization, and corporate power.”

Read the book to learn of additional outrages associated with Jeffrey Sachs.